Why India needs an agri-innovation fund to fund entrepreneurs, build their capacity, and create a robust agriculture ecosystem
By Swarandeep Singh Kambo, FRSA Sustainable Finance Specialist, CGIAR

India is one of the fastest-growing economies in the world and bears a lot of potential in many areas, one of them being innovation. This promising and dynamic area has seen rapid developments in the last few years as the country moved 18 places up on the Global Innovation Index, from rank 66 in 2013 to rank 48 in 2020. While India’s innovation performance has been improving, not all sectors have shown such improvements, especially agriculture. 

There is a clear need for India to innovate its food systems from merely ensuring food security to achieving nutritional security at the national level and an opportunity to contribute to the transformative nutritional security agenda for both urban and rural consumers. However, the agri-innovation ecosystem is still at an early stage and holds different challenges, such as a limited number of agri-entrepreneurs, limited funding for agri start-ups, and a lack of coordination between various stakeholders in this sector. These challenges impact the investment and financing needs of the agricultural value chain actors in general and, smallholder farmers and small and medium-sized enterprises (SMEs) in particular:

Limited funding: Agri-start-ups and SMEs lack access to relevant and appropriate funding mechanisms. There are two identified gaps: one in the financing funnel at the early stage, as start-ups are established, and a second one between the investment readiness of start-ups/SMEs and the risk private investors are willing to take. There is also a mismatch between investors and start-ups/SMEs seeking funding: many investors aim for companies scaling up and SMEs are interested in investing at least INR 2 crore, while a majority of start-ups in India require early-stage financing, ranging around INR 20 – 50 lakhs.

Limited entrepreneurial skills capacity building: Due to a lack of coordination between different stakeholders, agri start-ups and SMEs do not receive structured and coherent support when it comes to key business-building areas. These areas include among others product/service commercialization, team composition, financial control, or governance.

Limited coordination: Despite a big number of different stakeholders, the Indian agri-innovation ecosystem remains nascent and not well interconnected. 

To address the lack of access to relevant financial instruments by these enterprises and at the same time the risk-return-expectations and cost-restrictions of private investors, we need to design an innovation fund, promoting the growth of the sector, as well as to private business development and services providers. A public-private “Agri-Innovation Fund” can strengthen the Indian agri-innovation ecosystem by supporting agri-enterprises aiming for social impact at scale, thus delivering livelihood improvements to youth and women.

The role of the fund will be to provide coaching/capacity building and catalytic funding to stimulate the flow of investment towards impact enterprises and to incentivize social impact through the provision of matching grants or other appropriate funding mechanisms. Agri enterprises will thus have the funds and business support they need to scale up and commercialize their products and services. This innovation fund can be a great opportunity for a public-private partnership with the private sector expected to lead in developing and managing this fund, steering agri enterprises towards market demands and can thus expand their operations and be sustainable. However, due care must be paid to make the fund inclusive and gender-sensitive, promoting women’s participation and reducing gender inequalities through specific innovations, pre-designed as part of the fund’s theory of change.

The fund should be structured to have a government or semi-government enterprise that can act as a nodal agency, such as NABARD, and make annual grants of INR 10 crores to the fund of and have a private sector partner or a private sector consortium which can mobilize at least the INR 10 crores per year.