Time was when the state of the economy could be discerned by the magnitude of the shortages of two commodities -- food and foreign exchange. When the scarcity of either one of these went beyond a threshold, radical (and usually, good) policy changes were the consequence.

One could go so far as to say that the economic history of India between 1947 and 1991 could be viewed entirely through the lens of food and foreign exchange crises.

The appropriate emphasis here is on the word "history". The chronic food shortage was addressed by a combination of initiatives beginning in the late 1960s that is now referred to as the first Green Revolution.

The chronic foreign exchange shortage was addressed by currency devaluation, combined with the several industrial, financial and trade reforms that were initiated in 1991, which have cumulatively created an environment in which capital inflow into India from the rest of the world have given us more foreign exchange than most of us know what to do with.

Of course, if dealing with these two shortages provided an enduring solution to the country's economic problems, somebody could well have written a best-seller called "The end of economics". But, that was not to be. The discipline has often demonstrated its powerful survival instinct and, having been deprived of food and foreign exchange as issues of concern, will inevitably find other items whose supply-demand mismatches pose a threat to the performance of the economy.

These days, of course, one doesn't have to look very far. Two "commodities" -- real estate and young professionals -- are very obviously in situations of serious shortage. Demand is far outstripping supply and prices are way up. The question is: are these significant enough to have macroeconomic consequences? And, if they are, how should we deal with them?

In a country with India's population density, high land prices relative to other asset prices are a perfectly logical outcome. Even so, the sudden explosion of prices, particularly in large cities, over the last two or three years seems to be driven by other factors. The increase in demand due to rising incomes and falling interest rates has, of course, intensified the mismatch but has also highlighted the fundamental constraints on supply.

One, real estate that is relatively well-served by existing infrastructure (however inadequately) commands a huge premium. Two, services, which have contributed so much to growth, require large agglomerations of young professionals in big cities. This ends up narrowly concentrating the demand for real estate, both housing and commercial.

A simple macroeconomic linkage can be construed as follows. As long as the current growth pattern and performance persist, real estate prices will continue to rise. Because of the concentration, however, they will probably rise faster than the ability of greater business volumes and affluence to afford them.

At some point, though it is impossible to predict precisely when, commercial and affordability considerations will impede the process, with growth in activities that are intensive in urban real estate simply coming to a stop. Given that overall growth has been significantly dependent on these, it can only be adversely affected.

There are, of course, obvious policy responses to both factors. Quality infrastructure beyond the existing boundaries of urban agglomerations addresses the first. Diversifying the portfolio of activities contributing to growth so that the process is more geographically dispersed is a way to deal with the second. This can be reinforced by rationalising the regulations on land use within cities, although the legacy here is extremely complicated.

The essential point, however, is that none of these solutions offers short-term relief. Let alone the time taken to make the necessary investments in infrastructure, the process of getting them started itself is plagued by uncertainties. Geographic dispersal also depends on infrastructure, so this is effectively a double bind.

The supply scenario for young professionals is determined by essentially similar factors. The capacity of the public higher education system has stagnated, if not declined, over the last several years.

The private sector is so constrained in its entry that no significant capacity across a wide range of professional qualifications has been created. In the segments in which it has entered, formal quality assurance has yet to be credibly implemented, so that, just like for land, there are disproportionate premiums for alumni of institutions with established reputations.

The macroeconomic linkage is also similar, given that many of the services that are intensive in real estate are also intensive in professional skills. Sooner or later, the persistence of wage increases must translate into commercial non-viability and a petering out of the growth momentum.

However, in this case, the solution is potentially far more accessible, dependent as it is on facilitating the entry of private education providers and putting in place a reasonable system of quality assurance. The recent decision to allow foreign universities to set up facilities in India is huge step in bringing opportunities for professional education to aspiring Indians, who otherwise end up spending much more money attending these universities in their home countries.

But, beyond this, the conditions of entry and the minimum standards of service delivery have to be laid out in a transparent way, so that legitimate domestic providers can also broaden the base of their offerings.

Of course, we have to recognise that policies to deal with shortages have to factor in the political economy context. In any situation of shortage, the incumbent provider is king. He will not take kindly to initiatives that threaten his monopoly power.

One cannot imagine owners of prime land passively accepting plans by governments to make significant investments in infrastructure outside their domains. Similarly, given the very lucrative situation that incumbent private providers are in today, they will obviously resist the entry of competition. This is mainly why policies to address these shortages only go through when the country is unambiguously in a crisis situation.

But, as tempting as it is to wait for a crisis to precipitate sensible changes in policy, the risks are just too high. No one can predict how a crisis will play out and what costs it will extract before the policy responses begin to take effect.

We have been lucky with this approach in the past, but that was partly because the performance of the economy prior to the crisis was so lacklustre that there was hardly any risk of doing any worse. That is certainly not the case now.

The author is chief economist, Crisil. The views here are personal.