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- GDP (PPP):
- $4.7 trillion
- 4.0% growth
- 6.8% 5-year compound annual growth
- $3,830 per capita
- Inflation (CPI):
- FDI Inflow:
India’s economic freedom score is 55.7, making its economy the 120th freest in the 2014 Index. Its score is 0.5 point higher than last year, reflecting modest improvements in six of the 10 economic freedoms including trade freedom and fiscal freedom. India is ranked 25th out of 41 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
Over the 20-year history of the Index, India has advanced its economic freedom score by nearly 11 points. From a low base, it has achieved double-digit improvements in half of the 10 economic freedoms, most notably trade freedom, which improved by over 65 points. Although India continues to be rated a “mostly unfree” economy, the country has achieved its highest score ever in the 2014 Index.
Institutional shortcomings continue to undermine India’s chances for long-term economic development. The government’s presence in the economy remains extensive through state-owned enterprises and wasteful subsidy programs that result in chronically high budget deficits. In September 2012, the government lifted foreign direct investment restrictions in several sectors including retail and aviation. However, the overall regulatory environment remains burdened by administrative bureaucracy. Non-tariff barriers and burdensome investment regulations hamper private-sector development and modernization of the economic base.
India is a relatively stable democracy, but its size and diversity (more than 80 percent of its population is Hindu, but its Muslim population is one of the world’s largest) are challenges to effective governance. A Maoist insurgency still plagues central and eastern India, as evidenced by an attack on Congress Party workers in late May 2013. Prime Minister Manmohan Singh’s government has been undermined by corruption scandals and a faltering economy, with growth at a 10-year low. The ruling Congress Party is focusing on populist policies to shore up votes for parliamentary elections in 2014 and has avoided the implementation of much-needed economic reforms. India is a significant force in world trade, but its economy continues to operate far below its potential.
Recent anti-corruption legislation was spurred by domestic and international pressure to counter the effects of graft on government efficiency and economic performance. The judiciary is independent of the executive branch, but judicial procedures tend to be protracted, costly, and subject to political pressure. Enforcement of intellectual property rights protection laws is weak, and piracy of copyrighted materials is widespread.
The top individual income tax rate is 30.9 percent, which includes an additional 3 percent levy for education. The top corporate tax rate is 32.4 percent, although domestic corporations pay only 30 percent. Surcharges push the effective rates higher. Other taxes include a value-added tax (VAT). The overall tax burden is 7 percent of GDP. Government expenditures are 27 percent of gross domestic output, and public debt is about 67 percent of GDP.
Progress in improving the entrepreneurial environment has been only modest. Launching a business takes more than 25 days on average, and licensing requirements cost almost 10 times the level of average annual income. The labor market lacks flexibility, and its complex regulations hinder dynamic job growth. In September 2012, the government reduced fuel subsidies and raised rail fares for the first time in a decade.
India’s average tariff rate is 7.2 percent, and non-tariff barriers, including tariff-rate quotas on corn and dairy imports, significantly impede trade. There are many bureaucratic barriers to foreign investment. The financial system remains subject to government interference, and the state retains considerable ownership in the banking sector. All domestic banks are required to do priority-sector lending as directed by the government.