Economic effectiveness of climate-smart agricultural practices for smallholder farmers: evidence from prioritized high-value crops in South Asia

South Asia encounters distinct challenges and heightened vulnerabilities to climate change while striving for food security. Climate-smart agriculture (CSA) plays an imperative role to improve agricultural productivity, enhance climate resilience, and reduce greenhouse gas emissions. However, economic assessments of CSA rely on traditional cost-benefit analysis (CBA) that does not incorporate social and environmental externalities and fails to capture investment flexibility and externalities under climate crisis. This study provides an integrated economic evaluation framework combining CBA, externality valuation, and real option analysis (ROA) to assess the viability and strategic value of CSA interventions across Nepal, India, and Sri Lanka. Using household survey data along with focus group discussion and willingness to pay (WTP), data from high-value crops of 10 CSA practices were evaluated for their financial (NPV) and social net present value (SNPV), social internal rate of return (SIRR), and real option analysis. The analysis shows that precision nutrient management (NPV = USD 510.21/ha, IRR = 24%, BCR = 1.04), crop rotation (NPV=USD1464.39/ha, IRR = 44%, BCR = 1.08), mixed cropping (NPV = 513.49/ha, IRR = 41%, BCR = 1.07), and drip irrigation (NVP = 636.25/ha, IRR = 29%, BCR = 1.02) are economically feasible CSA practices. When environmental and social externalities such as women’s empowerment, biodiversity conservation, and greenhouse gas mitigation are included, the overall value of CSA practices increases significantly. Real option analysis, based on the Black–Scholes model, showed crop rotation (SNPV = 3492.94, SIRR = 46.47%) and precision nutrient management (SNPV = USD3024.70, SIRR = 56.24%) exhibited high option. The findings underscore the importance of integrating real options analysis and externality valuation into CSA planning and policy. This approach supports more informed, adaptive, and socially inclusive investment decisions that is critical for advancing sustainable agriculture and climate resilience in South Asia.