SCOPE OF AGRO-EQUIPMENT FINANCING

Project Description
The objective of the study is to evaluate the scope of the small agri-euipment financing for smallholders in
India. This study analyses the demand for the small agro-equipment financing in the Indian context. It also
covers the potential clients for such financial services, available government schemes and competitor
analysis. The study looks for the feasibility of agro-equipment financing, the challenges in its
implementation and possible opportunities in this space.
Literature Review
As per the IFAD 2010 report, world will be witnessing a 70% increase in demand for the food production by
2050 for 9 billion. The huge demand will be so humongous in nature that it will be beyond the capacity of
developed nations. Thus, it is extremely important for us to leverage on the rising capacity of financial
institutions to enhance the current food production levels of the underdeveloped nations. It is has been stated
that productivity enhancement will not only fulfil our bellies but also have a significant impact on the lives
of people. The institutions can finance the smallholder farmers involved in small-scale husbandry and
agricultural production. It is not necessary to focus only on the production capacity. Activities like input
supply, processing and marketing can also be taken into consideration for increasing overall productivity
(Andrews, 2006).
MFIs can think on routine (short-term) or long term approaches. For short term, the money can be financed
for seeds, fertilizers, pesticides, hired labour, rented land, short-term livestock fattening, storages spaces
(post-harvest), value adding processing activities, etc. Investments in these are better ROI options, but the
farmers do not have sufficient funds or collateral to purchase these equipment. Long term activities includes
investment in small tractors, motorised pumps, oxen, horses, transportation equipment (post-harvest), in
access to productive land, investment for perennial or plantation crops where returns are high but usually
require high initial investment. Dignified savings account for farmers can also be proposed to mitigate the
risk due to uneven agricultural income.
In economic analysis of small agricultural loan in Punjab Privince, Pakistan, author concluded that there was
a significant increase in the revenues from production after opting for small agricultural loans. This if
properly designed and implemented can have manifolds benefits in the lives of smallholders.
Another study in Indonesia concluded that credit lending to post-harvest management, marketing &
distribution activity, credit screening, monitoring and accompaniment must be preferred while financing in
this space. As use of credit outside agricultural activity is more effective to enhance the productivity.
In previous demand survey study in high agricultural intensive states in India, it was concluded that there is
low-demand for small agro-equipment. The reason being there are more demand for heavy machineries and
there are several existing government schemes at National and State levels. Therefore, it does not make
sense to the clients for availing loans for relatively cheaper products.
Market Analysis and projection
As per the reports, the agricultural equipment market is expected to reach 1245B by 2023 having CAGR of
6.3% between 2018-23. The major driving forces in this sector are availability of credit, increasing capacity
of financial institutions, government incentives, increasing agricultural productivity, emergence of contract
farming and increasing rural incomes. However, there is a slight dent in the growing projections this year
due to pandemic situation. Despite this, the market is supposed to bounce back in the months to come.
Existing Government Schemes
There are several government initiatives to help the workforce in the agricultural sectors. The mechanization
is at all time-high in the sector. Keeping that in mind, several state and national level initiatives are taken
which are as follows:
National Level
*Schemes
1. MSP facilities
2. Kisan Credit Card
3. Interest subvention scheme
4. PM-KISA
5. National Crop Insurance Programme
6. Weather based Crop Insurance Scheme
*Subsidies for farmers
1. Rashtriya Krishi Vikas Yojna
2. Sub-mission on Agricultural Mechanization
3. NABARD loans
State-level
1. Jharkhand: Land Conservation Department offers 90% subsidy to women establishments for
purchasing machines
2. Telangana: As per Yantra Laxmi Scheme (50%- SC/ST, 100%- General) subsidy is offered for tractors
and other equipment.
3. Karnataka: It offers help helps to farmers on rental basis in collaboration with VST tellers, John
Deere and Mahindra.
4. Tamil Nadu: It offers subsidy 40-50% subsidy for farm equipment.
5. Kerala: It offers 25% subsidy for tractors.
6. AP: The state offers free tractors provided you have one acre of land, no tractors and have
supporting documents.
7. Maharashtra: The state offers subsidy 35% subsidy for farm tractors and 50% subsidy on machines
for SC/ST. The rates are 25% for tractors and 40% on machines for general category.
8. Madhya Pradesh: There subsidised tractor offerings worked really well.
9. Uttar Pradesh: The state offers 25% of cost-aid or Rs.45000.
10. Assam: The subsidy rates in the state are quite high. It offers 70% subsidy upto Rs.5.5 lacs provided
you have 2-acre land.
11. Odisha: The subsidy rates are 50% and 40% for tillers and tractors respectively.
12. Gujarat: The rates are 25% for general category and 35% for SC/ST category.
Conclusion
The government is doing its best to assist the farmers by launching several schemes and subsidised
initiatives. There is immense potential for farm mechanization in the market and huge projections in the
coming years. But, for small agro-equipment there is little to no demand in the market and not a feasible
option to invest. Though we can look for post-harvest activities which can be a boon for the smallholders. .
As most of the small agro-equipment lies in the cost bracket of Rs.1000-Rs.15000, so it can be our blue
ocean area. Therefore, financing those products will increase the operation cost for the company.