For agriculture and related industries, Union Budget 2022-23 was unlike any other.
Through various announcements, including a co-investment fund for agritech companies, a public-private partnership (PPP) scheme, promoting ‘kisan’ drones, modernising the curriculum of agriculture universities, Finance Minister Nirmala Sitharaman in her speech on February 1, put a major thrust on digitising the sector.
The sector, which employs the majority of the country’s population, usually see union budgets only focusing on three areas — subsidies, minimum support price, and infrastructure.
“The specific focus around digitisation and adoption of technology is new and extremely futuristic and required because that will build the foundation of the industry for 10 years down the line,” says Subhadeep Sanyal, Partner at Omnivore, a venture capital (VC) firm focused on agritech. “In that aspect, it is a forward-looking budget, and considers how technology can become an enabler in agriculture.”
One of the three visions the Finance Minister emphasised in the Budget speech centred around “promoting digital economy and fintech, technology-enabled development, energy transition, and climate action.”
These announcements solve one of the key challenges this sector faces.
“Today, there is no transparency in the agri value chain – you don't know when things go from the farmer to the market, or how things are exchanged and at what price, and who is really capturing the value,” says Prashanth Prakash, Partner at Accel — a VC firm that invests in seed, early and growth-stage in startups. “By digitising the entire value chain, it will bring in transparency and will make these value chains more efficient.”
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The budget made provision for a fund with blended capital, raised under the co-investment model through the National Bank for Agriculture and Rural Development, an apex body under the Ministry of Finance to regulate regional rural banks and apex cooperative banks in India.
“This is to finance startups for agriculture and rural enterprise, relevant for farm produce value chain,” the Finance Minister said in her speech. The proposals are aimed at benefitting startups that directly support farmers, producers, as well as organisations that provide machinery and technology to farmers.
Subhadeep said that blended finance is a great tool, which has worked well globally to incentivise certain larger outcomes.
“What this will provide is additional funding for the agri-incubated startups that graduate from incubators, which are currently not available in the ecosystem because we do not have that many agri-focused funds,” Prashanth notes. “There could be more follow-on funding available for companies that come out of incubators and accelerators. So, in a way, it provides that bridge for additional funding which was lacking in the ecosystem.”
The PPP scheme to deliver digital and hi-tech services to farmers addresses the problems of the ecosystem, including limited access to accurate information, machinery, capabilities, and markets by bringing in agri-focused companies that are more technology-focused.
Historically, the government has been a massive procurer in the ecosystem, and this decision gives the agritech startup a chance to bid into these projects and build into the old government procurement system, Subhadeep says.
“I think this is the right step in that direction. That will also allow faster proliferation and at least trial of technologies will become much faster,” he adds.
Prashanth emphasised leveraging startup models to make the value chain more efficient by using data. “Without data, it would be very difficult to really provide value in many of these circumstances. So, digitisation is a key and almost like a bigger key prerequisite, before startups can transform and value-add," he explains.
In the Union Budget, Nirmala Sitharaman said the government will set up 75 digital banking units in 75 districts of the country through scheduled commercial banks to boost the penetration of formal financial services and serve the underbanked population of India.
Among other things, the government will provide financial support for the promotion of economical and user-friendly digital payment platforms in 2022-23 too, add 25,000 km of highways, and award contracts for laying optical fibre in villages.
While these announcements may not be directly linked to the agritech sector, Subhadeep says these decisions would be “a huge game-changer”, which will improve financial support network for farmers, providing them easier access to capital, information and improve logistic networks — thus, creating new hubs and enabling new startups to emerge in the sector.
Edited by Kanishk Singh