India a notch down in economic freedom, but ahead of China

India a notch down in economic freedom, but ahead of China

Despite a drop in rank, India has been placed ahead of China, Indonesia and Vietnam by the 2005 Economic Freedom of the World (EFW) report.

Topping the list is Hong Kong, with a score of 8.9, whose citizens enjoy the maximum economic freedom in the world, according to the report. It is followed by Singapore (8.8), New Zealand (8.5), Switzerland (8.3), and Canada, the UK and the US tied at the fifth place with 8.1 points. The higher the index, the more the economic freedom.

The Fraser Institute, Canada, in its latest annual rating of 141 countries, has ranked India 69th with a score of 6.6 and China at 86th with 6.3. Though India improved on its score—it aggregated 6.5 last year—it was better ranked last year, 60th among 130 nations, while China was ranked 91st with 5.9.

Launching the report globally here on Tuesday, commerce and industry minister Kamal Nath said that “in terms of freedom to trade internationally, India’s rating has improved to seven in 2005 from 3.9 in 1990, one of the largest increases in the last 15 years."

However, India does not fare well in terms of freedom of access to sound money and market regulations. It scores best—7.7 compared with 7.6 for the US and 5.1 for China—in terms of size of government. This means that government budgets are relatively low, and it has a smaller government enterprise sector and lower marginal tax rates.

EFW, which was begun by the late Nobel Prize-winning economist Milton Friedman, measures economic freedom of countries in five areas: size of government; legal structure and security of property rights; access to sound money; freedom to conduct international trade; and regulation of credit, labour and business.

These broad categories are covered by 42 smaller indicators, many of which are common to the Global Competitiveness Report of the World Economic Forum, the Doing Business report of the World Bank, and the International Country Risk Guide of the New York-based PRS Group.