Budget 2026: How Farm Finance Must Evolve, Says EY

Agriculture's Finance Challenge

India's agricultural sector remains constrained by limited access to affordable credit, a persistent bottleneck that hampers productivity and growth across rural India. Farmers continue to struggle with high borrowing costs, stringent collateral requirements, and limited reach of formal financial institutions in remote areas. The 2026 Union Budget presents a critical opportunity to address these structural gaps and reshape how capital flows to the farm economy.

EY, in its pre-budget analysis, has articulated a roadmap for policymakers to consider. The recommendations go beyond incremental changes—they outline fundamental shifts needed in how the banking system, government schemes, and fintech platforms collaborate to serve agricultural finance.

Key Expectations for Budget 2026

Strengthening Institutional Credit Flow

EY expects the budget to boost institutional lending mechanisms that can reach smaller and marginal farmers. The current emphasis on priority sector lending remains inadequate; banks need clearer mandates and incentives to expand agricultural credit beyond traditional borrowers. This includes revisiting risk-sharing models and credit guarantee schemes to reduce the perceived risk for lenders.

The consultancy also flags the need for technology integration in farm credit assessment. Digital credit scoring, mobile banking infrastructure, and satellite-based land assessment can dramatically reduce transaction costs and approval timelines—critical for seasonal agricultural cycles.

Expanding Collateral Alternatives

Traditional collateral requirements remain a major hurdle for small and marginal farmers who lack titled land or significant assets. EY advocates for broader acceptance of alternative collateral, including warehouse receipts, government contracts, and agricultural produce. Such measures could unlock credit for millions of farmers currently excluded from the formal system.

The budget could incentivize banks to accept group lending models and farmer producer organisations (FPOs) as aggregators of credit risk, allowing individual farmers to borrow against group guarantees rather than personal assets.

Subsidy Reform and Direct Support

While input subsidies remain politically sensitive, EY suggests the budget should reorient subsidy architecture toward credit access rather than end-product pricing. Direct benefit transfers linked to credit utilization could ensure fiscal discipline while improving farmer outcomes. This approach would free resources for institutional strengthening without entirely dismantling support systems.

The consultancy recommends decoupling fertilizer and diesel subsidies from credit access, instead using budget allocation to strengthen rural credit infrastructure and lower the cost of borrowing for agricultural purposes.

Digital and Financial Inclusion Push

EY emphasizes that technology must form the backbone of agricultural finance expansion. Rural digital infrastructure—broadband penetration, mobile banking platforms, and digital identity—remains inconsistent across states. Budget allocation toward closing this digital divide could accelerate fintech penetration in farm lending.

The consultancy also highlights the role of non-banking financial companies (NBFCs) and microfinance institutions (MFIs) in complementing bank lending. Regulatory framework clarity and refinancing options for NBFCs serving agriculture could unlock significant private capital for farm credit.

Inter-Agency Coordination and Data Sharing

Currently, agricultural finance data remains fragmented across banks, government schemes, and cooperative institutions. EY calls for a unified credit information system specifically designed for agriculture—one that captures loan defaults, repayment patterns, and farmer-level credit histories. Such data infrastructure would improve lender confidence and enable better risk assessment.

The budget could fund a dedicated agricultural credit bureau and mandate data sharing protocols between lenders. This transparency would reduce information asymmetry that currently works against small farmers seeking credit.

Sectoral Priorities for Finance

High-Value Agriculture and Horticulture

EY notes that specialty crops and horticulture require different financing models than cereal cultivation. Longer gestation periods, higher working capital needs, and price volatility demand tailored credit products. The budget should incentivize lender experimentation with contract farming-linked credit and output-price hedging mechanisms.

Climate-Resilient Agriculture

With climate variability increasing, farmers adopting sustainable practices and climate-smart technologies need accessible credit. EY expects budget support for green financing—concessional loans for drip irrigation, soil health improvement, and renewable energy adoption on farms. This aligns agricultural finance with environmental goals.

Supply Chain and Value Addition

Beyond farm-level credit, the budget should unlock financing for agricultural value chains. Processing units, cold chains, and agri-startups require working capital and term loans. Dedicated budget allocation toward agricultural MSME financing could multiply the impact of direct farm credit.

Fiscal and Implementation Realities

While EY's recommendations are comprehensive, implementation depends on fiscal space and institutional capacity. The government must balance rural credit expansion with deficit management. However, agricultural credit is often self-liquidating—farmers repay from output sales—making it fiscally sustainable compared to pure subsidies.

EY also cautions against creating parallel institutional structures. Instead, the budget should strengthen existing infrastructure—cooperative banks, regional rural banks, and NABARD—through better capitalization and operational autonomy.

The 2026 budget offers a once-a-year opportunity to recalibrate agricultural finance. EY's expectations reflect a consensus among policymakers and economists: sustainable growth in agriculture depends on farmers' reliable access to affordable credit. Implementation of these suggestions could reshape rural finance for decades to come.