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How free are we economically?

High growth rates and a nearly $2-trillion economy hasn’t translated into economic freedom. We rank a lowly 123 out of 179 nations on this count. Gaurav Choudhury writes.

india Updated: Aug 15, 2012 00:26 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times

India is expected to become a $2-trillion economy within the next two years. But is economic freedom going hand in hand with economic growth?

The Heritage Foundation, which, in partnership with The Wall Street Journal, has tracked economic freedom around the world over the last decade ranks India at a lowly 123, one level below Pakistan, out of 179 nations. Raghuram G Rajan, professor at the University of Chicago and India’s chief economic advisor-designate, says freedom of choice implies not just the theoretical possibility of choice but also the individual’s actual ability to exercise it.

“For the son of a landless laborer, stunted by malnutrition and inadequate health care and incapacitated by what passes for education in state-run schools, the employment choices thrown up by the growing Indian economy are not meaningful,” he said in a recent paper.

According to The Heritage Foundation index, India’s economic freedom score is 54.6 out of a maximum possible score of 100, making its economy the 123rd freest in the 2012 index.

"The state maintains an extensive presence in many sectors through state-owned enterprises, and the legacy of decades of failed socialist policies includes a substantial tolerance for government meddling in economic activity," the foundation said.

So, despite India’s high economic growth, the foundations for long-term economic development remain fragile in the absence of an efficiently functioning legal framework. Corruption, endemic throughout the economy, is becoming even more serious.

To be sure, economic reforms have increased economic freedom. For instance, the set of desirable white-collar career choices has expanded vastly from medicine, engineering and government services.

India’s per capita income, calculated by dividing the national income among the population, has crossed Rs. 60,000 a year.

The figure gives an idea of the standard of living of the people, although it may be hiding a stark reality: much of the growth in income may have been driven by the richest Indians.

Therefore, reforms that lead to greater economic freedom remain a high priority area for policy makers.

First Published: Aug 14, 2012 23:35 IST