India

Economic Freedom Score

25 50 75 100 free
Most Least free 0

World Rank:

119

Regional Rank:

23

55.2

ndias economic freedom score is 55.2, making its economy I the 119th freest in the 2013 Index. Its score is 0.6 point higher than last year, with improvements in the management of public finance and monetary freedom offsetting a continuing decline in freedom from corruption. India is ranked 23rd out of 41 countries in the AsiaPacific region, and its overall score is below the world average. Indias institutional shortcomings continue to undermine the foundations for long-term economic development. In the absence of a well-functioning legal and regulatory framework, corruption throughout the economy is becoming a more serious drag on the emergence of a more dynamic private sector. The states presence in the economy remains extensive through state-owned enterprises and wasteful subsidy programs that result in chronically high budget deficits. Progress in structural reform has been uneven and often stalled. Plans to open up key service sectors have been reversed, and no significant reforms have been implemented effectively in recent years. Efforts continue, however. Reform measures aiming at reducing government subsidies and encouraging foreign direct investment were announced in 2012. BACKGrOUND: Although more than 80 percent of Indias population is Hindu, its Muslim population is one of the worlds largest. In 2010, India resumed bilateral talks with Pakistan that had been suspended after attacks in Mumbai in 2008 by a Pakistan-based terrorist group. Improved relations between the U.S. and India are evidenced by a Strategic Dialogue aimed at fostering cooperation in defense, energy, trade, education, and counterterrorism. Prime Minister Manmohan Singhs government has been roiled by a series of corruption scandals, a faltering economy, and skyrocketing inflation. The ruling Congress Party fared poorly in state-level elections in March 2012 and is increasingly beholden to regional parties, whose populist agendas prevent the central government from enacting muchneeded economic reforms. Though its size makes India a significant force in world trade, the economy continues to operate far below its potential.
See page 477 for an explanation of the methodology or visit the Index Web site at heritage.org/index.

Freedom Trend
57 56 55 54 53 52

2009

2010

2011

2012

2013

Country Comparisons
Country World Average Regional Average Free Economies
0 20 40 60 80

55.2 59.6 57.4 84.5

100

Quick Facts
Population: 1.2 billion GDP (PPP): $4.5 trillion 7.2% growth in 2011 5-year compound annual growth 8.1% $3,694 per capita Unemployment: 9.8% Ination (CPI): 8.6% FDI Inow: $31.6 billion Public Debt: 68.1% of GDP
2011 data unless otherwise noted. Data compiled as of September 2012.

How Do We Measure Economic Freedom?

245

INDIA (continued)
THE TEN ECONOMIC FREEDOMS
Country World Average Rank

RULE OF LAW

Property Rights 50.0 Freedom from Corruption 31.0

0 20 40 60 80 100

53rd 93rd

The rule of law is uneven across the country, and the independence of the judicial system is poorly institutionalized. Judicial procedures tend to be protracted, costly, and subject to political pressure. Property rights are not protected effectively, and the enforcement of intellectual property rights is seriously deficient. Legislation to set up an independent ombudsman to investigate corruption is stalled in the parliament.

LIMITED GOVERNMENT

Fiscal Freedom 78.3 Government Spending 77.9

0 20 40 60 80 100

92nd 54th

The top income tax rate is 30.9 percent (30 percent plus an education tax of 3 percent), and the top corporate tax rate is 33.99 percent with a 7.5 percent surcharge and a 3 percent education tax. The overall tax burden equals 7.4 percent of GDP. Government spending amounts to 27.1 percent of total domestic output, and the budget remains in deficit. Public debt has grown to 68.1 percent of GDP.

REGULATORY EFFICIENCY

Business Freedom 37.3 Labor Freedom 73.6 Monetary Freedom 65.3

0 20 40 60 80 100

165th 45th 159th

Organizing new investment and production remains a burdensome process. Launching a business takes more than 25 days on average, and licensing requirements cost over 15 times the level of average annual income. The underdeveloped labor market lacks efficiency, and the informal sector remains an important source of employment. The state maintains price controls on a range of products, and monetary stability has weakened notably.

OPEN MARKETS

Trade Freedom 63.6 Investment Freedom 35.0 Financial Freedom 40.0

0 20 40 60 80 100

147th 128th 106th

The trade-weighted average tariff rate remains a burdensome 8.2 percent, and complex nontariff barriers further impede trade. Indias bureaucratic investment regime creates an unfavorable environment for new investment, and the country has been slow to give its citizens the freedom to shop at low-cost multinational retail stores. State-owned institutions dominate the financial sector where foreign participation is limited.

Score Changes
RULE OF LAW
Property Rights Freedom from Corruption 0 2.0

LIMITED GOVERNMENT
Fiscal Freedom Government Spending +2.2 +3.1

REGULATORY EFFICIENCY
Business Freedom +1.8 Labor Freedom 0.6 Monetary Freedom +2.4

OPEN MARKETS
Trade Freedom Investment Freedom Financial Freedom

0.5 0 0

246

2013 Index of Economic Freedom