In an effort to convey the message that it is a government committed to accelerating reform, the NDA government has, on February 5, chosen to simultaneously announce a broad set of policy changes covering diverse areas of the economy. The measures were a motley combination of more privatization of large PSUs, a cost-cutting voluntary retirement scheme (VRS), further liberalization of the food grain trade, and moves to dilute price control in the case of a number of commodities, notably sugar and pharmaceuticals. The synchronized announcement of these measures suggest that they are not just significant in themselves, but noteworthy because they were announced simultaneously. The intent, it appears, was to make "economic reform" the focus of the February thrust.
 
In fact, many of the new measures constitute marginal adjustments in areas where liberalisation has already been the norm. Take the area of foodgrain trade, for example, where it has been decided to remove all restrictions on movement of foodgrains, edible oils and sugar and to completely decontrol the sugar industry after operationalising futures trading. These measures were provided for in last year's budget speech itself, when the Finance Minister had declared that his government intends to "review the operation of the Essential Commodities Act (ECA), 1955 and remove many of the restrictions that have been imposed on the free inter-State movement of foodgrains and agricultural produce and also on the storage and stocking of such commodities." He had also said that the government would "review the list of commodities declared as essential under the said Act and bring their number down to the minimum required." The February 5 announcement by removing 12 of the 29 items covered by the ECA merely begins implementing a decision announced in last year's budget speech.
 
Even at the time of the last budget, the government was emboldened to announce these measures largely because in the case of many commodities covered by the ECA, capacity expansion or supply increases accompanied by sluggish demand had resulted in unutilized capacities or large stocks. Unless the demand situation changes substantially and supply fails to respond, as is indeed quite possible in areas like food grain and sugar, the controls had no major role to play. And even if that were to occur, other elements of the process of liberalization were rendering control meaningless. Thus, import liberalization was contributing to easing domestic supply constraints, since commodities in short supply could be easily accessed from abroad, even if with adverse consequences for indigenous production. And the gradual erosion of the importance of the public distribution system, in the name of limiting subsidies, was reducing the need of the government for guaranteed access to a minimum amount of a commodity like sugar for servicing the PDS.
 
This is not to say that this round of decontrol is not without significance. The removal of an additional 36 bulk drugs from the list of those 74 whose prices are controlled would result in a substantial increase in drug prices, as past experience with such initiatives amply illustrates. According to reports, an ORG-MARG Survey of 270 drugs decontrolled in an earlier round in 1995 found that around 45 per cent of them have registered a 20 per cent increase in price, while the prices of another 5 per cent had risen by 40 per cent.
 
Similarly, the decision to remove quantitative restrictions on the export of wheat, wheat products, non-basmati rice, coarse grains and pulses can, if international prices rise and domestic supply falls, have major implications for the quantum and cost of domestic availability and therefore for food security. These measures are clearly driven by the "confidence" generated by a food surplus that results from consecutive good harvests and depressed domestic demand. But in an area where production tends to be volatile and acreage shifts are the norm, the basis for such confidence can be short-lived.
 
These likely or possible consequences notwithstanding, all of these measures are part of processes that have been afoot for quite some time now. Hence, though important in themselves, the real explanation of the timing of further advance in those directions lies in two other measures which the government has announced: the VRS scheme for surplus government employees and the announcement of the strategic sale of VSNL and four hotels owned by the ITDC and the Hotel Corporation of India. It is indeed true that even these two initiatives announced early February are part of processes that have been underway for quite some time. Privatization has been on the agenda of Central governments ever since the beginning of accelerated reform in the early 1990s, though the present government has been desperate in recent months to speed up the process. And the plan to reduce the Central government's workforce, by combining a carrot and stick policy has been in the air since the submission of the report of the Expenditure Reforms Commission.
 
However, unlike the other measures discussed these two are directly related to the budget, as a precursor to which the package being discussed was announced. Recent budgets have made clear that the government has failed to achieve it's own self-imposed, and often irrational, targets regarding fiscal deficit reduction, because of the tax concessions it has provided as part of economic ‘reform'. This makes some show of expenditure reduction imperative, if it's oft-repeated commitment to ‘fiscal reform' is to remain credible. The Finance Minister had indeed committed himself to reducing the number of employees in government by limiting recruitment and exploiting attrition, in his budget speech for 2001-02. With attrition in the government establishment placed at 3 per cent of the current labour force, he promised to reduce employment in government establishments by 2 per cent a year by keeping new recruitment to 1 per cent of the current labour force. If this is done over the next five years, as he claimed it would, government would be downsized by 10 per cent of current employment, which was the goal he set himself.