The Economic Freedom Chart 2011

Tamil Nadu offers maximum economic freedom and Bihar the least among 20 of India’s big states, according to a study. The Economic Freedom of the States in India 2011 ranked the states based on the extent of wealth, administrative and social parameters in 2009. The USbased Cato Institute published the rankings in association with Indicus Analytics and the Friedrich Naumann Foundation. Both the states retained their positions since 2005. “The new report shows that there is a great diversity among Indian states in terms of economic freedom,” Cato said in a posting on its website. “The study finds that states with more economic freedom tend to have better economic performance.” The study used a methodology adapted from the Fraser Institute’s Economic Freedom of the World annual reports. It followed three broad parameters—state size, legal & security structure and labour & business regulation—to arrive at the conclusion. Gujarat ranked second in the report, moving up three ranks since 2005. The state continued to offer the most efficient regulatory system, the study said. But Andhra Pradesh registered the fastest improvement in economic freedom, moving up from seventh position in 2005 to third in 2009. “Andhra Pradesh reduced waste and corruption and implemented innovative reforms,” Cato said. “Three factors—buoyant agriculture, rural infrastructure, and the elimination of Maoism—boosted employment and attracted in-migration from other states.” The state registered maximum improvement in terms of ease of doing business with respect to labour and other regulations and saw lesser strikes and lockouts. Even as some states improved in economic freedom, others worsened, showing that there is no uniform all-India trend, the study said. The bottom three states in 2009, in reverse order, were Bihar, Uttarakhand and Assam. While Bihar was the still the last in 2005, Assam was 19th and West Bengal was 18th. Bihar’s lowest ranking was despite improvement in its legal and security structure. The states with the largest decreases in economic freedom were Madhya Pradesh, Orissa, Uttarakhand, Punjab and Himachal Pradesh. Punjab, once among the best performers, slipped from sixth position in 2005 to 12th in 2009. “It has been riding too long on its earlier successes, and its present track record on governance, broadly defined, is anything but satisfactory,” Cato said. Haryana, Tamil Nadu, West Bengal, Rajasthan and Jammu & Kashmir registered moderate increases in economic freedom. Maharashtra, Kerala, Bihar, Jharkhand, Karnataka, Uttar Pradesh, Assam and Chhattisgarh showed moderate declines. Madhya Pradesh saw a deterioration in its regulatory index though the fall was somewhat compensated by progress made in improving legal structure and security apparatus. The study said more economic freedom translated into faster growth of the states. It said the states that showed largest decreases in economic freedom had an average annual gross domestic product (GDP) growth of 6.7% between 2004-05 and 2008-09. States with moderate decline averaged 8.7% while those that improved the most (Andhra Pradesh and Gujarat) averaged 10.5%. The study said states such as Bihar and Chhattisgarh, although on a high growth trajectory, ranked low mainly because their growth was characterized by a single sector, for example construction in Bihar and mining and basic industry in Chhattisgarh.

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