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October 2016
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| Indian (The Total Investment & Insurance Solutions) |
The Fraser
Institute's annual Economic Freedom of the World Report raises some important
points for Indian policymakers. The
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The Fraser
Institute is a Canadian think tank that initially held conferences on devising
methodologies for measuring economic freedom from 1986-1994. The participants
and hosts during this time included leading economists and academicians like
Milton Friedman, Rose Friedman, Michael Walker, Douglass North, Gary Becker,
William Niskanen, and Gordon Tullock et al. Post this, the Annual Freedom of
the World Report since 1996 has sought to measure economic freedom across
different countries in the world. Four points emerge from Fraser's work in the
area of economic freedom.
First, what
is economic freedom, its key dimensions for measurement and its benefits? A
classic definition of economic freedom for individuals is when the ‘economic
property that people acquire is without the use of force, fraud, or theft is
protected from physical invasions by others and they are free to use, exchange,
or give their property as long as their actions do not violate the identical
rights of others'.
Thus,
essentially, economic freedom is dependent on the following broad dimensions: Security
of privately-owned property, levels of personal choice, ability to enter
markets and the rule of law. The index of economic freedom thus tries to
measure the extent to which rightly-acquired property is protected and
individuals are engaged in voluntary transactions. The benefits of having
greater economic freedom include prosperity and a higher quality of life. The Total Investment & Insurance
Solutions
Second, what
are the key areas of the Index and which are the countries performing well and
worse on the Index? The key areas include a) Size of government; b) Legal
system and security of property rights; c) Sound money; d) Freedom to trade
Internationally; e) Regulation.
Under each
of these areas are further components and sub-components of measurement. In the
2016 index, for which the data is from the year 2014, Hong Kong is rated as the
most economically-free country. The top 10 countries include Singapore at No.2
followed by New Zealand and Switzerland.
At the
bottom of the Index are countries like Venezuela at 159 where the socialist
government has severely limited the freedom of its citizens. Other countries at
the bottom of the list include Libya at 158, the Republic of Congo at 157 and
Argentina at 156 The Total Investment
& Insurance Solutions
It can be
easily seen that countries that have more economic freedom tend to have greater
prosperity as measured by per capita GDP while countries that have lower levels
of economic freedom have lower economic prosperity. The Total Investment & Insurance Solutions
The third
important point pertains to India and its performance in relation to other
countries on the Index. India is placed 112th, which is in the third quartile
of economically-free countries. Among the BRIC economies, it is placed below
Russia (102) but above China (113) and Brazil (124).
Within the
five broad areas, India's rank is best for the size of the government (8),
while it performs poorly on regulation (132) and freedom to trade
internationally (144). Though the index does not factor in the data for
2015-16, India's trade performance, particularly its export performance, to say
the least, has been dismal due to global economic sluggishness and factors such
price of commodities being low leading to low demand from commodity-rich
nations and India's global partners.
India must,
thus improve along the key dimension of international trade over time in the
index. Similarly, too many regulations have hampered the prospects of economic
growth. The government has done well to identify and weed out key laws and
regulations that are not in accordance with the present times. Better
regulations over time will help in improvement along the regulation dimension
of the Index.
Finally,
India's performance over time also offers important insights. According to
successive reports, India's economic freedom increased in the decade following
economic liberalization in 1991 but post that has been more or less consistent
with a few variations up and down.
The most
recent edition saw movement 10 places down on the Index. This calls for
introspection and more reforms, some of which are being presently undertaken.
These include the GST law, which is in the process of implementation. More such
reforms in the land, labour and capital markets will certainly be beneficial
for unleashing the creative potential and freedom of Indian citizens.
Over time
India must improve along the key dimensions of the Index to ensure a better
quality of life for all its citizens.The
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