The steps the committee envisages will go a long way in improving India’s fiscal health. Painful as they doubtless are going to be, and as heartless as they may seem, we really do not have many options. The whole world has been taken aback by the sharp rise in crude oil prices. We were not sufficiently vigilant about our energy supply situation. There is a price to be paid for the lack of visionary leadership and a lack of awareness of the critical role of energy in our economic systems.

David Strahan, the author of The Last Oil Shock, wrote in the The Daily Telegraph out of London last week: “It is endlessly reported that the demand for oil in Asian countries has soared since the turn of the century, and that China’s thirst has been especially prodigious. What is less realised is that global oil production has been essentially stagnant, at around 86 million barrels a day, since early 2005.” He was referring to the concept geologists call “peak oil” — the time when the world reaches a maximum in oil supply and thereafter sees terminal declines in oil extraction.

No leadership saw this coming. And it is this stagnant supply encountering a growing demand that is behind the sudden, sharp price increases in crude. Need for increased efficiency of use and conservation of our precious energy resources is thus a given. Continued subsidisation of crude distillates is financially unsustainable. Such subsidies will lead to our budget deficits, public debt and other macro variables rising to much higher levels, leaving the economy prone to macroeconomic instability. If we wish the Indian economy to withstand external shocks, the sooner we start re-engineering our production, communication, economic, political and social systems, the better. For that, we need to ensure economic agents receive appropriate signals from the market; and in this case, those are higher fuel prices.

... contd.