Warning that poor agricultural performance will be a challenge to stable prices, the Economic Survey said on Tuesday inadequate investments, incentives and post-harvest value addition had contributed to 'lacklusture' farm sector growth.
Though firm prices and better crop prospects in the Rabi season have brightened the outlook in the short-term, the "prospects for agriculture will be determined by the pace and quality of the reforms in this sector", said the pre-Budget survey tabled in Parliament.
Noting that wholesale prices of most agricultural products were firm in 2006-07, the survey said this along with better crop prospects 'augurs well for farm income'.
Foodgrain production is estimated to increase to 209.2 million tonnes this fiscal from 208.6 million tonnes in 2005-06.
The Survey said the growth of agriculture and its allied sectors will be 2.7 per cent according to the advance estimate, substantially lower than the quick estimate of six per cent for 2005-06. The share of agriculture in GDP in declined to 18.5 per cent in 2006-07, while the contribution of services and industry increased substantially.
"After an annual average of three per cent in first five years of the new millenium starting 2001-02, growth of agriculture at only 2.7 per cent in 2006-07, on a base of 6 per cent in the previous year, is a cause of concern," it said.
Low investment, imbalance in fertiliser use, low rate of seeds replacement, a distorted incentive system and low post-harvest value addition continued to be a drag on the sector's performance, the Survey said.
The ability to increase investment in surface irrigation, groundwater recharge, restoring water bodies and developing high yielding varieties of non-cereal
food crops will be other key factors that will determine prospects in the medium term.
The Survey suggested that the target of four per cent growth in the farm sector could only be achieved by an improvement in the scale and quality of agricultural reforms undertaken by states.
The reforms must aim at efficient use of resources and conservation of soil, water and ecology on a sustainable basis and in a holistic framework, it said.
This holistic framework should incorporate financing of rural infrastructure like roads, water and power.
The Survey termed the decline in the agricultural sector's capital formation in GDP as 'disturbing', but said there was an indication of this trend being reversed with public sector investment increasing since 2002-03.
The share of the farm sector's capital formation in GDP dived from 2.2 per cent in the late 1990s to 1.9 per cent in 2005-06.
The Survey was positive about crop production in the country, though the lower yield compared to the global average continues to be a cause of concern.
"Low yield per unit area across almost all crops has become a regular feature of Indian agriculture," it said.
Pointing to this gap, the Survey said while the yield of paddy in India stands at 2.9 tonnes a hectare, the global average is 3.9 tonnes a hectare and in the US, it is 7.8 tonnes a hectare.
It suggested that the development of area-specific seeds and their application, particularly in the water abundant eastern region, could increase yields in these areas.
Economic Survey 2006-07: Complete Coverage