2015 Index of Economic Freedom

India

overall score54.6
world rank128
Rule of Law

Property Rights55.0

Freedom From Corruption36.0

Limited Government

Government Spending78.3

Fiscal Freedom79.4

Regulatory Efficiency

Business Freedom43.3

Labor Freedom48.7

Monetary Freedom65.3

Open Markets

Trade Freedom64.6

Investment Freedom35.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 1.2 billion
  • GDP (PPP):
    • $5.1 trillion
    • 4.4% growth
    • 6.9% 5-year compound annual growth
    • $4,077 per capita
  • Unemployment:
    • 3.7%
  • Inflation (CPI):
    • 9.5%
  • FDI Inflow:
    • $28.2 billion
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India’s economic freedom score is 54.6, making its economy the 128th freest in the 2015 Index. Its score is down by 1.1 points from last year, with modest improvements in business freedom, property rights, and freedom from corruption offset by declines in labor freedom and trade freedom. India is ranked 26th out of 41 countries in the Asia–Pacific region, and its overall score continues to be below the regional and world averages.

India’s level of economic freedom is unchanged over five years. The state’s presence in the economy remains extensive through state-owned enterprises and wasteful subsidy programs that cause chronically high budget deficits. In the absence of a well-functioning legal and regulatory framework, a weak rule of law exacerbated by corruption in many areas of economic activity undermines the emergence of a more vibrant private sector. India remains a “mostly unfree” economy.

The reform-minded Modi administration has undertaken some necessary structural adjustments with a focus on reforming the inefficient and bloated government sector, better managing public finance, and improving the business and investment environments. The first budget presented in July 2014, however, was short on detail about plans to restructure wasteful subsidy programs and reignite economic growth.

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Background

India is a relatively stable democracy. It is 80 percent Hindu but is still home to one of the world’s largest Muslim populations. The Bharatiya Janata Party, led by Narendra Modi, won a sweeping victory in the 2014 national elections, held over a five-week period. The previous Congress Party–led government was unseated amid corruption scandals and a faltering economy. After decade-low GDP growth in 2013, Prime Minister Modi has promised to implement economic reform in order to attract private-sector investment. Corruption, poor infrastructure, and fiscal deficits are major obstacles to economic growth. India is a significant force in world trade, but its economy continues to operate far below its potential.

Rule of LawView Methodology

Property Rights 55.0 Create a Graph using this measurement

Freedom From Corruption 36.0 Create a Graph using this measurement

In a poll, 96 percent of Indians said chronic corruption was holding back their country. Corruption has had a negative effect on government efficiency and economic performance. The judiciary is independent, but Indian courts are understaffed and lack the technology necessary to clear an enormous backlog, estimated by the U.N. to total 30 million–40 million pending cases.

Limited GovernmentView Methodology

The top individual income tax rate is 30.9 percent (including an education tax). The top corporate tax rate is 32.4 percent. The overall tax burden equals 7.3 percent of domestic income, and government expenditures amount to 26.9 percent of the domestic economy. Public debt equals approximately 67 percent of GDP. The fiscal deficit has declined but remains above 4 percent of GDP.

Regulatory EfficiencyView Methodology

Business registration fees have been considerably reduced, but completing licensing requirements remains time-consuming. Although minimum wages are low, the labor market remains plagued by low labor productivity and the relatively high non-salary cost of hiring a worker. The government had announced its intention to cut badly targeted fuel subsidies but has yet to set out a clear plan.

Open MarketsView Methodology

India’s average tariff rate is 7.7 percent. Non-tariff barriers further interfere with the flow of goods and services. Government procurement policies can favor domestic firms. The government screens new foreign investment. The evolving financial sector remains vulnerable to state interference. The government retains considerable ownership in the banking sector, and the level of nonperforming loans is relatively high.

Country's Score Over Time

Bar Graph of India Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
2Singapore89.40.0
3New Zealand82.10.9
4Australia81.4-0.6
5Taiwan75.11.2
6Japan73.30.9
7South Korea71.50.3
8Malaysia 70.81.2
9Macau70.3-1.0
10Brunei Darussalam68.9-0.1
11Kazakhstan63.3-0.4
12Thailand 62.4-0.9
13Philippines62.22.1
14Samoa61.90.8
15Kyrgyz Republic 61.30.2
16Vanuatu61.11.6
17Azerbaijan61-0.3
18Tonga59.31.1
19Mongolia59.20.3
20Fiji590.3
21Sri Lanka58.6-1.4
22Indonesia58.1-0.4
23Cambodia57.50.1
24Bhutan57.40.7
25Pakistan 55.60.4
26India54.6-1.1
27Bangladesh 53.9-0.2
28Maldives53.42.4
29Papua New Guinea53.1-0.8
30China52.70.2
31Tajikistan52.70.7
32Vietnam51.70.9
33Laos51.40.2
34Nepal51.31.2
35Micronesia49.6-0.2
36Solomon Islands470.8
37Uzbekistan470.5
38Burma46.90.4
39Kiribati46.40.1
40Timor-Leste45.52.3
41Turkmenistan41.4-0.8
42North Korea1.30.3
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