India Achieves its Highest Ever Score on the Index of Economic Freedom

India achieved its highest ever score on the 2016 Index of Economic Freedom. India’s score of 56.2 gave it the 123rd rank among the 178 countries ranked by this index. India was ranked the 25th among the xx nations in the Asia Pacific region. The 123rd rank puts India in the category of “mostly unfree”. India was able to achieve its highest ever score due to improvements in trade related freedoms. Hong Kong was ranked 1st in the 2016 Index of Economic Freedom, followed by Singapore, New Zealand, Switzerland and Australia

About the Index of Economic Freedom

The Index of Economic Freedom was launched in 1995 by the Heritage Foundation, a public policy research institute, in collaboration with the Wall Street Journal newspaper. The Index evaluates in four broad policy areas that impact economic freedom, rule of law, limited government, regulatory efficiency and open markets. There are ten specific categories on which scores are collected, and which feed into the four policy areas mentioned above. These categories are property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom and financial freedom. According to their scores and rankings, countries are placed in four groups, free, mostly free, moderately free, mostly unfree and repressed.

Why Measure Economic Freedom?

Economic freedom is the fundamental right of every person to control his or her own labor and property. In a society which is economically free, individuals are free to do all kinds of economic activity, including work, production, consumption, and investment, in any way they please. In such a society, governments allow labor, capital, and goods to move freely, and do not coerce or put restrictions on liberty, except when needed to protect liberty. The creators of the Index believed that economic freedom brings greater prosperity. The Index documents the positive relationship between economic freedom and a variety of positive social and economic goals, such as healthy communities, clean environments, greater per capita wealth, human development, democracy, and the elimination of poverty.

Findings of the 2016 Index of Economic Freedom

Global economic freedom has advanced for the fourth year in a row. The global average economic freedom score of 60.7 is the highest recorded in the 22-year history of the Index. The free-market system continues to flourish, accepted by governments around the world as the system most likely to improve the well-being of their populations and eliminate poverty. Economies rated “free” or “mostly free” enjoy incomes that are twice the average level seen in all the other countries, and four times the level of the average income in the “repressed” countries. Individuals living in economically free societies also tend to live longer and have better health. Economically free societies tend to be more environmentally conscious and achieve more innovations in science and technology as compared to societies that are not economically free.

An Explanation of India’s Score

India’s score improvement has primarily come from an improvement in trade, business and monetary freedom. However, India remains “mostly unfree” in all the policy areas tracked by the index. The rule of law in India remains poor. Corruption is widespread at all levels, and has a negative effect on government efficiency and economic performance. The judiciary is independent, but has a huge backlog, which leads to long delays in court cases. Lack of clear legislation on land acquisition is a big hindrance to the development of industry. Government spending amounts to 27% of total output, indicating that India does not have a limited government. Progress on reforming subsidies and rationalizing expenditure remains slow. Regulatory efficiency is also poor, given that launching a business takes more than 25 days on average. The labour market lacks efficiency due to the lack of progress on labour reforms; the informal sector remains an important source of employment. Lastly, India also performs poorly in the open markets category. Numerous non-tariff barriers impede the free flow of goods and services. Government procurement policies favor domestic firms. Foreign investment in many sectors of the economy is capped.