The economic turmoil India has been experiencing for some time has reportedly been reversed by the current government. Allegations of breaking shackles to implement new reforms float on the surface of Indian confidence. Ironically, despite promised demands and reform talks, India has slipped to 119th position in the World Economic Freedom Report of 165 countries. In 2020, the country was ranked 105th but has now fallen behind its neighbors including Bhutan, Sri Lanka and Nepal.
A key question arises here: Why is economic freedom important? Economic freedom is inextricably linked to socio-political and economic upliftment, better politics and standard of living. Countries with greater economic freedom tend to have better living standards than those without.
Size of government and taxation, protection of people and private property, sound currency, openness to trade, and sensible regulation of business, labor, and capital markets are all important to economic freedom—and these are the five key areas that the Fraser Institute measures for the economy. World Freedom Report.
India’s biggest challenge
The Economic Freedom Index shows that under the Bharatiya Janata Party (BJP) government led by Prime Minister Narendra Modi, India faces the greatest challenge on the cornerstones of recognizing economic freedom. There is a gross violation of personal choice, voluntary exchange, freedom to enter markets and compete, and security of person and private property – those factors necessary to be associated with economic freedom.
Worryingly, India is one of the fastest growing economies in the world, but its policies are corrupt and do not support growth. It is high time that the Indian government actively protected us from such diseases.
The report shows that India lags far behind other South Asian countries in terms of economic freedom. Hong Kong leads South Asian countries, but China’s heavy regulatory hand may reduce it in the future. Singapore claims the second position. India (108) follows Taiwan (17), Japan (18), Korea (47), Kazakhstan (55), Malaysia (55), Philippines (58), Mongolia (61), Indonesia (70), Thailand (89), Bhutan (92), Sri Lanka (94), Nepal (99) and Russia (100).
Poverty and unemployment in India
As noted above, the report measures economic freedom in five broad areas. Within these, there are 24 components and further sub-components, adding to 42 separate variables in the index. Each component (and subcomponent) is measured on a scale of 0 to 10 that reflects the distribution of the underlying data. A gender-related legal rights adjustment is also used to measure the extent to which women have the same level of economic freedom as men. The methodology is technically sound and the data is collected from international organizations.
According to the World Bank, India’s average gross domestic product (GDP) per capita was $6,118.36 in 2020, adjusted for purchasing power parity (PPP), just 34% of the global average. . It is worrying that despite 75 years since India’s independence, a large population remains in mass poverty. During the pandemic-induced recession, the population living in poverty (
The unemployment rate also reached its highest level in more than four decades at 10.3% in October-December 2020. Studies, spanning two decades, show that where economic freedom is greater, the investment rate in the economy and economic growth rate are higher. Rising incomes, employment and falling poverty are visible.
The only improvement in India’s economic situation
The single key area of India’s improvement has been the “size of government” made possible by improved public financial management and monetary freedoms. However, the points achieved here have been swallowed up by the increase in corruption in the country. Moreover, systemic deficiencies harm long-term economic growth. The lack of functioning of the judiciary and the judicial system, in addition to the pervasive corruption in the economy, has contributed to the slowdown of the active private sector.
The report says the budget deficit will only increase with extravagant government-dominated subsidy schemes in many sectors. Although economic reforms in India are in full swing, the simplification of key services has stalled. Bureaucracy creates an unfavorable environment for new investments. This includes delays in allowing multinational retailers to deliver goods to the public at low prices and the dominance of public sector entities.
The Indian economy is likely to be further threatened by the continuation of socialist policies. India’s growth rate has slowed due to a lack of adequate measures for economic freedom and also effective measures to control corruption as a whole.
The rule of law in India as a whole is not the same. The judiciary has weaknesses in the systematization of its independence. The judicial process remains long, costly and subject to political pressure. Other fallacies include free central government programs, failure to provide effective security for property rights, and deficient protection of intellectual property rights.
About 230 years ago, Adam Smith rightly recognized that economic freedom and the prosperity it brings work to the benefit of the poor. It is unclear which path the Indian government is taking – the path to stick to its policy planning or undertake new measures to induce economic freedom. Perhaps the ‘108’ rank is a sign that the Indian economy needs immediate medical attention, especially in terms of economic freedom.