4% farm growth key to 7% economic growth

To sustain an overall economic growth of 7 per cent and more, agricultural growth rate has to be increased to a minimum of around 4 per cent per annum, the RBI annual report said.

"If agricultural growth were to continue at its long-term average of 2.5 to 3.5 per cent, it would be difficult for industry and services to grow in the range of 9-10 per cent that would be necessary to attain the overall growth rate of 7 to 8 per cent," pointed out the report.

To attain higher growth in agriculture, the major areas that require attention, according to the central bank, are spread of insurance against crop losses and development of commodity-derivatives market to minimise the impact of price uncertainties.

Localised droughts in several meteorological subdivisions has raised concerns of crop failure even in a good monsoon year.

The schemes to restore water bodies announced in the Union Budget if properly implemented would provide some relief to the drought-prone regions, it said.

The central bank has also expressed concerns over the declining gross capital formation in agriculture due to a steady erosion in the share of public investment.

The inadequacy of private investment in fulfilling the capital requirements of agriculture has raised concerns about the state of the rural infrastructure which could turn into a binding constraint on growth. Irrigation coverage remains distinctly lower than the potential in terms of the gross cropped area.

Insufficient village electrification has adversely affected the expansion of irrigation coverage, the growth of processing industries and cold storage facilities.

The shortfall in capital formation relative to growth requirements in agriculture has also been reflected in poor road connectivity between farms and markets.

The focus, said the report, needs to be on crop diversification and broad-based agricultural development that will not only cater to the changing consumption pattern and reduce imports, but also take advantage of India's global competitive strength in various agricultural products.

The agro processing industry holds considerable potential in this context to emerge as the main driver of diversification of agriculture.