Friedrich-Naumann-Stiftung für die Freiheit - Economic Freedom for states of India 2005

Friedrich-Naumann-Stiftung für die Freiheit - Economic Freedom for states of India 2005 [Druckversion]

Economic Freedom for states of India 2005

The term economic freedom has many connotations. Different studies and measures of economic freedom use different definitions of economic freedom. According to Milton Friedman, economic freedom is one part of the concept of "human freedom"- which is a mix of economic, social and political freedom.

Economic Freedom of the World index measures the consistency of a nation’s policies and institutions with economic freedom. The State economic freedom ratings for India are limited to measuring economic freedom. Economic freedom itself here is considered to be one where the involvement of the government is minimal, and is largely aimed at protecting property and life and facilitating smooth transactions. This index considers economic freedom to mainly consist of personal choice, voluntary exchange, freedom to compete, protection of person and property and availability of legal and monetary arrangements that not only protect property rights of owners, but also ensure an even-handed
enforcement of contracts. It recognizes that economic freedom is furthered when the government does not interfere with personal choice, voluntary exchange, freedom to enter and compete in labour and product markets and entry into occupations and business activities. However, since this is a sub-national level study, some considerations of economic freedom do not apply. Also some indicators of economic freedom could not be included due to lack of good quality data.

The Economic Freedom of the World measures the performance of different countries using 5 major areas, namely, size of the government; legal structure and security of property rights; sound (legal and readily exchanged) money; freedom to trade with foreigners; and regulation of credit, labour and business. Together these 5 major areas make use of 37 variables to measure economic freedom. This study includes only 3 of them. This study captures the extent to which the states rely on government budget and political decision-making rather than personal choice and markets, the extent to which justice is served, the levels of corruption, functioning of free markets and the extent of regulation in labour markets. The ease with which economic agents can access and use alternative and more credible currencies and get access to credit and save their earnings; and the ease (extent of red-tape and convertibility) and extent of international trade are however not included. Such issues are meaningful only at the national level since there is a central policy for them.

This is the second year’s Economic Freedom Index for the States of India. This year’s ratings follow the same methodology, broadly the same data sources, but updated to the latest available. The difference in ratings for each of the States therefore allows us to follow how economic freedom has been changing in different parts of India. We find that many States have improved their ratings, but some have fallen significantly, reflecting greater intervention in the economy by the government, as well as a general fall in the freedom with which people can carry on their economic activities.

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Economic Freedom Index