India has seen ₹6,600 crore worth of private-equity investments in the agri-tech space in the last four years, a 50% growth per annum, a report from Bain & Company and Confederation of Indian Industry (CII) says. The report also estimates that about 30% of India's rural ecosystem is adopting digital payment and digital commerce solutions to avail easier access to agri-financial services today.

"Investors have focused on opportunities that address systemic issues, building sustainable systems and ensuring inclusive growth. Several global tech giants see this space as a new growth opportunity and are investing in innovative solutions for crop health monitoring and yield estimation," the report, titled 'Innovation in India's Rural Economy: Disruptive Business Models are Stimulating Inclusive Growth in Agriculture and Rural Finance', says.

According to the report, over the past decade, India's rural ecosystem has evolved significantly with multiple enablers priming this space for future growth. These trends have created an environment ripe for innovation—allowing start-ups and traditional players to introduce disruptive business models that address inefficiencies particularly in India's agriculture and finance sectors. Significant domestic and international investments are being pumped into the sector to improve efficiency and access to credit, it says.

"Disruption in India's food and agriculture will evolve from traditional agriculture to new farming models, advanced agri-tech services, and new food products. In the last six years, several start-ups have emerged to reduce systemic inefficiencies among inputs and marketplaces, precision farming, processing and storage," Parijat Jain, partner and leader of Bain's Agribusiness practice in India, said.

The report also points out that the country's rural microfinance sector has grown significantly in the past 18 months, rising from a gross loan portfolio of about ₹1,22,500 crore in December 2019 to ₹1,46,700 crore in March 2021. There has been a significant increase in access to credit in the rural ecosystem too. Agri credit has grown at 10% CAGR in the last five years, reaching nearly ₹14 lakh crore in 2019–2020. About 35% of agri-credit business comes from Tamil Nadu, Andhra Pradesh, and Uttar Pradesh, the report says. It also notes that as lending experience and risk base lining of borrowers mature, there has been an increasing trend of borrowers upgrading to traditional lenders and leaving higher cost microfinance lenders. "Access to data has also spurred credit growth because it supports better decision making among fintech players. With digitisation, transaction history is captured, even on small-ticket borrowers, and used to create more robust lending profiles," the report said.

Terming that the new generation of farmers and FPOs are becoming digitally savvy, the report identifies new business models that are emerging across the agriculture value chain, from inputs and harvesting to processing and distribution. Information and transparency initiatives are addressing existing inefficiencies and formalising a traditionally informal sector, it said.

"India's rural economy is poised for future growth enabled by rural digitisation, affordable technological access, financial inclusion initiatives, FPO and FPC community empowerment, improved infrastructure and access, increased investor focus, and a surge of tech startups in the space," Tarun Sawhney, chairman, CII Rural & District Economy Council, said.

The report points out that the Unified Payments Interface (UPI) transactions have doubled in the past year, processing eight times more transaction value today than credit cards. In addition to the pandemic, access to smartphones, lower cost of data, and Aadhaar building a digital identity that enabled services like Know Your Customer (KYC) and e-sign have been identified as the factors have fuelled the swift uptick.

While cash is still the dominant method of payment for rural financing, accounting for roughly 90% of all payments, digital payments penetration is increasing, driven by government interventions like the Payment Infrastructure Development Fund. Digital-first banking models and lowering of operational costs (which enabled lenders to service lower-value loans) also helped lending organisations scale into the sector, the report said.

It says expansion of FPOs' participation and role in the rural value chain, expansion of post-harvest infrastructure, access to robust data sources for real-time data and decision making and building trust with farmers can help the transformation of India's rural agri-tech space in a big way. "The ecosystem is now at an inflection point, and companies that address inefficiencies across the value chain will have explosive growth potential," the report said.

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