The survey, tabled in Parliament, said with good Kharif and bright Rabi prospects, foodgrain production is expected to increase by five million tonne in 2005-06 to 209 million tonne.
It also called for improving bank credit conditions for higher profits, better marketing and thrust on futures trading.
"A shift from the current MSP and public procurement system and developing alternative product markets are essential for crop diversification and broad-based agricultural development," it said.
Indian agriculture suffers from low yields per hectare, volatility in production and wide disparities of productivity over regions and crops.
It said a distinct bias in agriculture price support policy in favour of food grains in the past may have distorted cropping pattern and input usage and "may require corrections".
For incentivising credit to farmers, the survey said there is a need for a paradigm shift to encourage the banks to look at provision of credit to agriculture more as an opportunity for profit rather than a social obligation under directed subsidised credit.
The emerging areas like horticulture, floriculture, organic culture, genetic engineering, food processing, branding and packaging and futures trading have high potential for growth, it said.
During 2005-06, the credit flow to the priority sector was primarily driven by agriculture and allied sectors, the survey said.
It said loans to agriculture has more than doubled in last three years from Rs 60,761 crore (Rs 607.61 billion) in March 2002 to Rs 1,22,370 crore (Rs 1223.70 billion) at end of March 2005. It stood at Rs 1,41,612 crore (Rs 1416.12 billion) in end October 2005.
After dipping below one per cent in 2004-05, mostly on account of erratic rainfall, agricultural and allied sectors growth in 2005-06 is projected to be 2.3 per cent. Stating that the initial momentum to upswing in the economy in 2003-04 was provided by agriculture, the Survey said after a somewhat subdued impetus from the farm sector in 2004-05, there is a moderate recovery in 2005-06.
This is partly because of a change in the rainfall pattern from erratic to a near normal distribution.
Saying low productivity has afflicted the growth of Indian agriculture, the Survey said though India accounted for 21.8 per cent of the global paddy production, the yield per hectare in 2002 was less than neighbouring Bangladesh and Myanmar and only about a third of Egypt.
In the case of wheat, while India accounted for 12 per cent of its global output, the average yield levels were only a third of the highest level achieved in UK in 2002 even though it was higher than the global average.
In maize and groundnut, which accounted for two per cent and 18 per cent global output, yield levels were only 39 per cent and 57 per cent of the global levels, respectively.
In sugarcane, yield was in excess of global level.