Column: Almost unfree

Jan 18 2014, 05:37 IST
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SummaryIndia’s poor EFI ranking is a wake-up call for the government to address the faultlines in the business environment

There have been discussions among economists, business leaders and other critics on the absence of an enabling environment in the country from the point of view of doing business. The World Bank has also rated us quite low on its scale of ease of doing business. Now, the Heritage Foundation has brought out its annual Index of Economic Freedom, which ranks India at 120 among 178 countries. Within the five broad categories of ‘free’ (score of 80-plus), ‘mostly free’ (70-80), ‘moderately free’ (60-70), ‘mostly unfree’ (50-60) and ‘repressed’ (less than 50), we fall in the ‘mostly unfree’ category, which is disturbing.

The Economic Freedom Index (EFI) works on the presumption that the best situation is where every individual has the freedom to work, invest, spend, move, own property, produce, etc, with few impediments. Governments need to create an environment that allows all this to happen by not just helping individuals but also keeping out of the way. The EFI looks at four broad factors covering 10 attributes which are evaluated to arrive at the final score. India’s score is 55.7 in 2014, and the silver lining is that it has increased from 45.1 in 1995. The earlier ranks do not quite matter as the number of countries in the set kept changing depending on the availability of data. Hong Kong leads with a score of 90.

The four broad areas are ‘rule of law’, ‘limited government’, ‘regulatory efficiency’ and ‘open markets’. Out of the 10 parameters that have been evaluated, India was mostly free in 3 attributes, moderately free in 2, mostly unfree in 1 and repressed in 4. Generally speaking, this is not a good showing at all.

In the ‘rule of law’ category, the EFI looks at property rights and corruption. We are at the borderline of property rights with a score of 50, which has not changed for the last 20 years or so. The issue that has been pointed out is that the protection provided to preservation of such rights is weak as the judicial system, though independent, is susceptible to prolonged processes which are expensive and also subject to political pressure. On corruption, we have always scored low and the best was 35 in 2009, against a present score of 31.5. One can hope that with this issue of governance coming up strongly in our polity, improvement could be expected in the next few years.

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