Economic Survey - Sharp fall seen in farm growth this fiscal

By Biman Mukherji and Mayank Bhardwaj

NEW DELHI (Reuters) - India's farm growth will slump to 2.6 percent this financial year, as lower investment and stagnating yields cut output in a sector which directly employs more than half workforce, the government said on Thursday.

Ministers have said that raising agricultural expansion to 4 percent is vital if the country is to maintain overall gross domestic product growth close to buzzing 9 percent levels.

But the finance ministry said in its annual survey of the economy for 2007/08 expansion was likely to fall far short of the previous year's 3.8 percent but be close to a long-term average of around 2.5 percent.

"Besides weather-based fluctuations, output of this sector has been affected due to reduced capital investment and plateauing of yield levels in major crops," the survey said.

On Friday, Finance Minister Palaniappan Chidambaram will unveil the ruling Congress party-led coalition's last full budget before general elections due by May 2009, and is expected to focus on ailing farms to bolster the economy and woo votes.

With irrigation systems watering just 40 percent of cultivated land, millions of poor farmers are dependent on erratic monsoon rains and in 2007 rainfall was classed as "deficient" over a quarter of the country.

The survey said boosting farm growth was vital for sustaining overall economic expansion and for price stability in the light of hardening international prices of food, fuels and edible oils.

A jump in global prices of farm commodities has made importing staples a costly and politically damaging exercise and contributed to a spike in local food prices.