The pre-budget survey, tabled in Parliament, said there is a "paramount need to move Indian agriculture beyond its century old dependency on the monsoon by bringing more area under irrigation and by better water management".
The 2004-05 survey said production in the current year has been adversely affected by erratic and delayed monsoon with uneven distribution of rainfall over time and regions.
Given the compulsions of fiscal consolidation, the choice is between subsidy for price support to crops, fertilisers, irrigation and power on the one hand, and higher public investment in supportive infrastructure for irrigation, roads, electrification, agricultural extension and research on the other hand, it said.
With these investments, diversification of the rural economy beyond not only cereals but also agriculture appears feasible, the survey noted.
It said the vibrancy of agricultural exports observed in the recent years can get a fillip from such investments coupled with a stable policy towards agricultural trade.
However, the Survey said as a result of comfortable buffer of food grain stocks, the pressure on food management this year is minimal.
"Although prospects of Rabi crops are good, the second advanced estimates of foodgrain production indicate a fall by six million tonnes from last year's level at 212 million tonnes," it said.
On the emerging challenges with regard to WTO regime, it said Indian agriculture faces both opportunities and challenges with liberalisation of domestic and global markets.
As regards the WTO agreement on agriculture, it observed that some of the important issues concerning the Indian farmers remained unresolved.
Noting lack of financial resources are constraining India from matching the level of support to agriculture provided by developed countries, the survey said in such a situation the only option available is to seek inclusion of those provisions in the WTO agreement which would provide sufficient protection to Indian agriculture.
"The major challenge is to remain within the system and protect the interests of Indian farmers effectively," it said adding more than 65 per cent of Indian population derived its livelihood from agricultural activities.
The survey said the Kharif (summer) crop suffered from a shortfall in the South-West monsoon, particularly in the crucial month of July.
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