India tanks to 105th spot from 79th in global economic freedom ranking

On size of the government, the major claim of the Modi government, the country’s ranking declined to 54th in 2018 from 36 in the previous year
India’s ranking in economic freedom tumbled to 105th among 162 countries in 2018 from 79th in the previous year, according to a report released by the Centre for Civil Society in conjunction with Canada’s Fraser Institute.

This was despite the fact that the report did not take into account the Covid impact which would be available in 2020. The major disappointment for India came on the parameter “freedom to trade internationally” on which India ranked 139th compared to 137 in 2017, showed the Economic Freedom of the World: 2020 Annual Report.

The other major disappointment was India’s ranking on “regulation” where it stood 122nd in 2018 against 114th in the previous year.

However, the country gained one place to 88th on “sound money” in the latest report, against 89 in the previous one. This parameter focuses on the importance of money and relative price stability. It retained its position at 79th on “legal systems and property rights.”

On size of the government, the major claim of the Modi government, the country’s ranking declined to 54th in 2018 from 36 in the previous year.

India reported decreases in each of the components of economic freedom. A score closer to 10 indicates a higher level of economic freedom. Its score fell to 7.16 from 8.22 on size of the government, to  5.07 from 5.17 on legal system and property rights and to 8.34 from 8.37 on sound money. Also, the score fell to 5.71 from 6.08 on freedom to trade internationally and to 6.53 from 6.69 on regulation of credit, labour and business.

Parth J Shah, president of the Centre for Civil Society, said, “The Centre and state governments have initiated business process re-engineering to simplify business registration and compliances. No doubt, some of these efforts have had a bearing on India’s score.”

He said since the ranking is based on 2018 data, many of the new restrictions on international trade, tightening of the credit market due to non-performing assets and Covid impact on debt and deficits are not reflected in India’s score.

The government still continues to play an overbearing role in many areas of economic life. The prospects for increasing economic freedom in India depend on next generation reforms in factor markets and in greater openness to international trade, he said.

Hong Kong continues to top the chart. However, the report did not take into account turmoil in Hong Kong in 2019 and 2020. 

It cautioned that the apparent increased insecurity of property rights and weakening of the rule of law caused by interventions of the Chinese government during 2019 and 2020 may have a negative impact on Hong Kong’s score. Economic Freedom of the world measures how policies and institutions of countries support economic freedom.  The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately-owned property.

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