Sustainable Agriculture and Carbon Neutrality in India : The Role of Financial Instruments

Abstract

This academic paper examined financial instruments as drivers for sustainable and carbon-neutral agriculture in India, aiming to analyze key initiatives and challenges in transitioning to environmentally friendly farming practices. Through a comprehensive literature review, the study found that major programs such as the Kisan Credit Card scheme, Pradhan Mantri Fasal Bima Yojana, and the National Mission for Sustainable Agriculture demonstrated India's commitment to promoting sustainable agriculture and improving financial access for smallholder farmers. However, five significant barriers persisted: (1) high-risk perception by financial institutions, (2) collateral limitations for smallholder farmers, (3) high transaction costs in rural areas, (4) limited financial literacy among farmers, and (5) policy inconsistencies. The research revealed that overcoming these challenges required a multi-faceted approach, particularly through promising financial innovations including blended finance, green bonds, weather index insurance, digital financial platforms, and carbon credit mechanisms. The paper also emphasized the role of technology in reducing transaction costs and the importance of public-private partnerships in scaling sustainable practices. Key recommendations included policy integration, innovative financial product development, farmer capacity building, and fostering collaborative ecosystems between government, financial institutions, and the private sector to develop effective financial systems supporting sustainability and carbon neutrality in India's agricultural sector.