Accurate market prices, together with good dissemination of data on sowing patterns, can do a far better job than support prices in directing agricultural production to where it is most valuable and needed. Somewhat paradoxically, raising energy prices to market levels will also lead to lower inflation over the medium term, the horizon over which the RBI is trying to contain inflation.
The reason is that higher prices will reduce excessive consumption, reduce subsidies and fiscal deficits, and incentivize investment and competition, even while allowing prices to be determined by an increasingly stable and plentifully supplied global market for energy. The consequences of inappropriate or inadequate price adjustments will be that the Reserve Bank will have to bear more of the burden in combating inflation.