2013 Index of Economic Freedom

India

overall score55.2
world rank119
Rule of Law

Property Rights50.0

Freedom From Corruption31.0

Limited Government

Government Spending77.9

Fiscal Freedom78.3

Regulatory Efficiency

Business Freedom37.3

Labor Freedom73.6

Monetary Freedom65.3

Open Markets

Trade Freedom63.6

Investment Freedom35.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 1.2 billion
  • GDP (PPP):
    • $4.5 trillion
    • 7.2% growth
    • 8.1% 5-year compound annual growth
    • $3,694 per capita
  • Unemployment:
    • 9.8%
  • Inflation (CPI):
    • 8.6%
  • FDI Inflow:
    • $31.6 billion
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India’s economic freedom score is 55.2, making its economy the 119th freest in the 2013 Index. Its score is 0.6 point higher than last year, with improvements in the management of public finance and monetary freedom offsetting a continuing decline in freedom from corruption. India is ranked 23rd out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.

India’s institutional shortcomings continue to undermine the foundations for long-term economic development. In the absence of a well-functioning legal and regulatory framework, corruption throughout the economy is becoming a more serious drag on the emergence of a more dynamic private sector. The state’s presence in the economy remains extensive through state-owned enterprises and wasteful subsidy programs that result in chronically high budget deficits.

Progress in structural reform has been uneven and often stalled. Plans to open up key service sectors have been reversed, and no significant reforms have been implemented effectively in recent years. Efforts continue, however. Reform measures aiming at reducing government subsidies and encouraging foreign direct investment were announced in 2012.

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Background

Although more than 80 percent of India’s population is Hindu, its Muslim population is one of the world’s largest. In 2010, India resumed bilateral talks with Pakistan that had been suspended after attacks in Mumbai in 2008 by a Pakistan-based terrorist group. Improved relations between the U.S. and India are evidenced by a Strategic Dialogue aimed at fostering cooperation in defense, energy, trade, education, and counterterrorism. Prime Minister Manmohan Singh’s government has been roiled by a series of corruption scandals, a faltering economy, and skyrocketing inflation. The ruling Congress Party fared poorly in state-level elections in March 2012 and is increasingly beholden to regional parties, whose populist agendas prevent the central government from enacting much-needed economic reforms. Though its size makes India a significant force in world trade, the economy continues to operate far below its potential.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 31.0 Create a Graph using this measurement

The rule of law is uneven across the country, and the independence of the judicial system is poorly institutionalized. Judicial procedures tend to be protracted, costly, and subject to political pressure. Property rights are not protected effectively, and the enforcement of intellectual property rights is seriously deficient. Legislation to set up an independent ombudsman to investigate corruption is stalled in the parliament.

Limited GovernmentView Methodology

The top income tax rate is 30.9 percent (30 percent plus an education tax of 3 percent), and the top corporate tax rate is 33.99 percent with a 7.5 percent surcharge and a 3 percent education tax. The overall tax burden equals 7.4 percent of GDP. Government spending amounts to 27.1 percent of total domestic output, and the budget remains in deficit. Public debt has grown to 68.1 percent of GDP.

Regulatory EfficiencyView Methodology

Organizing new investment and production remains a burdensome process. Launching a business takes more than 25 days on average, and licensing requirements cost over 15 times the level of average annual income. The underdeveloped labor market lacks efficiency, and the informal sector remains an important source of employment. The state maintains price controls on a range of products, and monetary stability has weakened notably.

Open MarketsView Methodology

The trade-weighted average tariff rate remains a burdensome 8.2 percent, and complex non-tariff barriers further impede trade. India’s bureaucratic investment regime creates an unfavorable environment for new investment, and the country has been slow to give its citizens the freedom to shop at low-cost multinational retail stores. State-owned institutions dominate the financial sector where foreign participation is limited.

Country's Score Over Time

Bar Graph of India Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing India to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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