The public sector is prominent in the supply chains of energy and food. Attempts to balance the interests of the consumer, producer and the government add to the complication of policy making in circumstances that are marked by extraneous shocks. The signals of the market are invariably deflected or modified because they do not meet the objectives of one of the interests. However, if supplies are ultimately determined by market forces then it is necessary for the policies to be aligned with them.

The rising prices of primary articles and yet no visible dynamism in the farm sector, the rising energy prices in the international markets but stable petroleum sector prices in the domestic market, the rising inflows of capital while the overall growth scenario appears under a cloud, and finally fiscal sops all around to keep the aggregate demand buoyant raise the suspicions of a free lunch somewhere. While the short-term policy stance appears quite complex, it is important to recognise that short-term remedies do not work if the pain is long term. The lessons of the current situation are also that longer term strategies are essential as far as the use of natural resources is concerned. Whether it is fossil fuels, water or land, maintaining the current rate of use, or extraction, will require more investments in recharging the stock. More importantly the issues are no longer limited to the national economy but they are increasingly global issues. It is not the supply and demand balances within India, which will determine the price Indian consumers will pay but supply-demand balances at the global level that will matter in determining the prices.

An important area where the scheme of cross subsidisation has become unstuck to such an extent that the direction of subsidisation has been reversed is the petroleum sector. It was not too far back that kerosene and LPG consumption was subsidised by the higher petrol prices and more importantly the revenues from the petroleum sector in general helped in financing government expenditures elsewhere. And now when the international crude prices have reached astronomical levels, it appears as if the whole of petroleum sector is being subsidized by the other sectors of the economy.

In a strange way the food and energy prices have come to highlight the fragile balance in the use of natural resources. The petroleum-ethanol-food chain has reiterated that there is no free lunch. The food price scenario and the petroleum price scenario also point to the magnitude of the shocks that may have to be faced in a global economy. The rise in crude oil prices beyond $100 per barrel was considered only a distant possibility just a year back. But this is now for real. Part of the rise is on account of the depreciation of the US dollar but unlike the case of food prices there do not appear to be significant supply reductions behind the aggravated price situation. The rise in demand that is causing high price of petroleum products today cannot be sustained indefinitely unless there are substitute sources of supply of energy.

These developments highlight the need for appropriate strategies with respect to investment and consumption spending. They also underline the need to develop technologies that can sustain consumption levels in the long-term. The low levels of consumption today require that there should be adequate investments so that future consumption levels can be higher. However, low consumption levels also require subsidies to ensure protection of minimum consumption levels. But consumption cannot be protected at higher levels without someone else willing to pay for new investments. The new steel plants, automobiles, metro trains, air travel and fertilisers will all require energy. The crude oil prices are only reminders that the energy supplies cannot be taken for granted. We need monitorable targets of more efficient use of natural resources rather than merely growth targets.

?The author is senior research counsellor, NCAER