2012 Cambridge Business & Economics Conference
ISBN : 9780974211428
Linking Economic Freedom to Economic Growth in India: Empirical
Evidences
FALGUNI PATTANAIK 1, NARAYAN CHANDRA NAYAK 2
ABSTRACT
The recent moves of the Indian economy towards further opening the economy with less
government control have brought about a host of changes in the policy structure with
respect to the size of the government, legal structure and security of property rights, and
labour, credit and business regulations of the country. Economic freedom which comprises
all the above-mentioned factors may have created favourable impacts on the growth of
India’s GDP and GDP per-capita. In a federal system like India, business regulations,
taxation, and government spending differ widely across states. All these may have a
bearing on the performances of the economies of the respective states. The present study
considering major states of the country attempts to test the hypothesis that greater
economic freedom leads to higher level of output and higher per-capita income. Lin-log
method is applied to categorical data containing economic freedom, level of output and
income per capita for a panel of 20 states for three time periods. The results tend to
establish the fundamental effects of economic freedom in fostering economic growth and
high income per capita. Three individual dimensions of economic freedom namely size of
the government, a strong rule of law, and flexible regulations governing credit, labor, and
product markets are also likely to exert beneficial impacts on GDP and GDP per capita.
Ensuring high economic freedom is thus a critical instrument towards achieving high
economic growth in India.
Key Words: Economic freedom, economic growth, income per capita, labour market
regulation, legal structure, size of the government
1
Assistant Professor (Economics), School of Humanities, KIIT University, Email: falguni@hss.iitkgp.ernet.in,
falgunipattanaik@gmail.com
2
Associate Professor, Department of Humanities and Social Sciences, Indian Institute of Technology,
Kharagpur, Email: ncnayak@hss.iitkgp.ernet.in
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1. INTRODUCTION
It is now widely established that market-oriented reforms will foster economic development
(Berggren, 2003). Liberalization of markets and building institutions for market are
considered crucial elements of Washington-consensus (World Bank, 2002), where adjustment
programs of international organizations like the International Monetary Fund (IMF) and the
World Bank helps freeing the economy from too much of government intervention. According
to the World Bank (2002), market-based institutions help in transmitting information
efficiently, enforcing property rights and contracts, and securing competition, which influence
economic development (De Vanssay and Spindler, 1994; Alesina, 1998; De Haan and
Siermann, 1998; Nelson and Singh, 1998). Institutions assure economic freedom and have the
credible ability to make the growth-enhancing incentives available through low taxation,
independent legal system and protection of private property (Murphy et al. 1991; Gwartney,
2009). Besides, there is a dynamic and organised economy, where free and fair competition
exists due to proper regulations and government enterprises are less in number (Johansson,
2001). The presence of these institutions also help promote predictable and rational decisions,
maintain a low and stable inflation rate (Akerlof et al. 1996) and provide incentives for free
flow of trade and capital investments carrying significant bearings on economic growth
(Slaughter, 1997).
A gradual transformation of the Indian economy was initiated as early as in late 1980s
with trade liberalization, slow but steady deregulation of investment and output controls.
However, since 1991 with the adoption of the economic reform programmes, economy has
witnessed a transition from a state-led development model to a neoliberal paradigm. As a
result, India has undergone a great deal of change internally and externally which ensures
more visibility of ‘invisible hands’ of free competitive market economy (Ghosh and
Chandrasekhar, 2007). Changes are noticeable and the growth rates of aggregate and per
capita national income have been quite impressive during the period of economic
liberalization. The recent moves of the Indian economy towards further opening up of the
economy with less government control has brought changes in the policy structure with
respect to the size of the government – expenditures, taxes and enterprises, legal structure and
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security of property rights, regulation of labour and business of the country (Debroy et al.
2011). Economic freedom which comprises all the above-said factors may have the potential
impact on and may facilitate a better integration with economic development outcomes like
growth rate (De Haan and Sturm, 2000; Leschke, 2000; Gwartney and Lawson, 2003;
Heckelman and Stroup, 2005; De Haan et al. 2006) and per capita income (De Vans ay and
Spindler, 1994; Islam, 1996; Ashby and Sobel, 2008) in India.
In a federal system like India, economic and political institutions, such as business
regulation, taxation, and government spending, differ across state just as they do across
national governments. The present study, while considering major Indian states, makes an
effort to test the hypothesis that greater economic freedom leads to higher rates of economic
growth and higher per capita income for the states. The study not only tests the effects of
aggregate economic freedom on economic growth and per capita income, but also considers
how each of the sub-areas of aggregate economic freedom influences economic growth and
per capita income of the Indian states. This may enable us to determine which economic and
political factors (the size of government, taxation, or labor market freedom) (Carlsson and
Lundström, 2002; Berggren, 2003) exert greater impact on states’ economic growth and per
capita income.
Accordingly, the paper is organized into six sections. Section 2 critically examines the
existing literature on economic freedom as an important factor accounting for economic
development i.e. economic growth and per capita income. Stylized facts on the trends in
economic freedom along with three individual areas, the magnitude of economic freedom and
economic growth and per capita income across the major states are presented in section 3.
Section 4 outlines estimation techniques and database of the study. Section 5 focuses on
economic freedom that affects economic growth and per capita income. Section 6 draws
implications from the findings and concludes the study.
2. REVIEW OF LITERATURE
As large differences exist in the literature examining relationship of economic growth
and development of countries around the world, a new line of research on economic freedom
is considered as an important factor for economic development. ‘Economic freedom’ means
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the degree to which a market economy is in place, where the central components are voluntary
exchange, free competition, and protection of persons and property (Gwartney et al. 1996).
The goal is to characterize the institutional structure and central parts of economic policy
(North, 1990). The incentives that economic actors (entrepreneurs, innovators, financiers,
industrialists, and others) achieve are determined in large part by the institutions in place,
(North, 1990), which can be inefficient or efficient.
2.1 Economic freedom and Economic Growth: Theoretical Consideration and Empirical
Evidences
As economic freedom implies competition, there are assorted reasons to expect that
free economies will grow more rapidly than those that are less free (Gwartney et al. 2007). In
general, competition is widely believed to lead to higher rates of economic growth. A liberal
economy provides greater opportunities for entrepreneurial discoveries and brings private
investments towards the areas experiencing the highest rate of return (Parente and Prescott,
2000). However, it is necessary to investigate the sub-components of freedom indices to
examine what aspects of freedom affect economic growth and per capita income (Ayal and
Karras, 1998; Heckelman and Stroup, 2000; Carlsson and Lundstrom, 2002; Dawson, 2003,
and Berggren and Jordahl, 2006) (Figure 1).
With regard to size of the government, opinions on the optimal size of the government
depend on the perception of how well the government pursues its tasks, which, in turn, is
largely dependent on the assumed underlying motives of the policy makers (Justesen, 2008).
From the perspective of public-choice, where government works with purely selfish motive,
the conclusion by and large is that ‘the smaller, the better’. However, if it is assumed that
government is a benevolent social planner trying to maximize some social welfare functions,
the conclusion may be different (Barro, 1990). There is substantial evidence that high levels
of taxes and government consumption may retard economic growth (Gwartney and Lawson,
2003). At the same time, there is a general agreement that the government does have some
efficiency-enhancing role (like providing pure public goods) (Angelopoulos et al. 2007), even
though its exact role is not yet demarcated (De Haan et al. 2006).
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For area 2, which pertains to legal structure and security of property rights, there
seems to be a broad consensus in the literature that secure property rights are crucial for
economic growth (Parente and Prescott, 2000). First, secure and transferable rights over assets
and contracts are investment-generating and hence growth-enhancing, since owners can be
sure that they will receive the benefits of their investments (World Bank, 2002). Second, with
secure property rights, the allocation of assets becomes efficient and hence it becomes growthpromoting (World Bank, 2002). Savings will be transferred to activities with the highest
expected profits. However, protection of property may create a monopoly situation for the
economic actor owning the right. A functioning legal structure and secure property rights may
be necessary as a complementary institution to all other categories of economic freedom
(Rodrik, 2000).
Access to sound money is yet another area of economic freedom, which focuses on the
costs of inflation. There are good reasons why especially high and volatile inflation will have
a negative impact on growth (Briault, 1995). However, Akerlof et al. (1996) argue that a
moderate level of inflation provides ‘grease’ to the price and wage setting process. The
economic adjustment of relative prices to shocks can become sluggish in the presence of
downward nominal rigidities in wages and prices. A moderate level of inflation provides for
some real wage flexibility, which reduces the natural, or long run, rate of unemployment
(Loboguerrero and Panizza, 2003). The empirical evidences on the inflation-growth nexus is,
however, somewhat mixed.
With respect to area 4, which is about freedom to trade internationally, it is considered
that there are efficiency effects from trade liberalization. The benefit is that the interaction
with global market may bring about diffusion of technology. in combination with international
competition, it enhances the productivity of the domestic firms if exchange is being done
according to the comparative advantages (Greenaway et al. 2002). However, there is an
inconclusive debate on the relationship between trade liberalization and economic growth
(Sachs and Warner, 1995; Rodriguez and Rodrik, 2000). Some authors (Greenaway et al.
2002) report evidence in support of a positive linkage, while others (Yanikkaya, 2003) are
skeptical.
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Regulation of labour, credit, and business is yet another dimension of economic
freedom. There is a broad consensus that less regulation in general becomes beneficial
for growth (Calmfors and Driffill, 1988, Baumol et al. 2007). However, to what extent all the
components included are detrimental to growth remains disputed (Altman, 2007).
Figure 1: Conceptual framework: Economic freedom and economic growth
Freedom to Trade Internationally
Legal Structure and Security of Property Rights
Encourages higher levels of
entrepreneurial activity and
small-business creation
ECONOMIC
FREEDOM
ECONOMIC
GROWTH
Reduces the costs,
financial and regulatory
both
Size of Government: Expenditures, Taxes, and Enterprises
Access to Sound Money
Regulation of Credit, Labor, and Business
Source: Adopted with modification from Gwartney and Lawson (2007).
3. DATABASE AND EMPIRICAL METHODOLOGY
3.1 Database
The economic freedom scores of the country at large are presented and analyzed
taking that from the Economic Freedom of the World report constructed by the Fraser
Institute (Gwartney et al, 2010). The latter considers five major areas as mentioned earlier
with many components and sub-components and 42 distinct variables. Each component and
sub-component is placed on a scale of 0 to 10 reflecting the distribution of the underlying
data. Each sub-component, component and area is averaged to derive the ratings of each
component, area and economic freedom of each country respectively.
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Turning to state-wise analysis in India, economic freedom indices considered are taken
from Economic Freedom of Indian states 2011 (Debroy et. al 2011) for the year 2005, 2007
and 2009. The areas for which the index is constructed are derived from the Economic
Freedom of the World report constructed by the Fraser Institute. This ensures that the
economic freedom rating for Indian states has measures that are somewhat comparable with
those of other countries. However, given Indian conditions and the sharing of responsibilities
between the states and the central government, only three of the five areas are found to be
appropriate where state governments have powers to directly affect conditions and institutions
(Table A1). Those are (1) size of government: expenditures, taxes and enterprises, (2) legal
structure and security of property rights, (3) regulation of labour and business. These three
areas are designed to measure all major aspects of the economic freedom of the states. The
rating scale of the economic freedom index ranges from 0 to 1, with 0 representing the lowest
and 1 the highest degree of economic freedom. To measure the effects of economic freedom
on economic growth and per capita income, data on economic growth and per capita income
were collected from the Central Statistical Organisation for the above-said period.
3.2 Model Specification
This study uses pooled model analysis which is an inalienable instrument for the study
of political and institutional determinants of macroeconomic policies and performances
(Alvarez et al. 1991; Hicks, 1991; Swank, 1992). This enables us to exploit both the crosscountry and the time-series variations included in the sample.
k
Pooled linear regression model: yit  1    k xkit  eit
k 2
…1
Where i = 1, 2… N; refers to a cross-sectional unit;
t = 1, 2… T; refers to a time period
Empirical models:
EGit  1   2 EFit  eit
EGit  1  2 EFA1it  3 EFA2it  4 EFA3it  eit
…2
…3
PIit  1  2 EFit  eit
…4
PIit  1  2 EFA1it  3 EFA2it  4 EFA3it  eit
…5
Empirical models are designed to ensure that the potential econometric problems—
specification bias and simultaneity—are taken into account. By taking lag of one year for all
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the respective explanatory variables, it allows for slow adjustment because changes in
economic freedom are likely to affect economic growth only after some time (Auerbach and
Gale, 2009). To avoid the problem of multicollinearity, we estimate each area of economic
freedom and aggregate economic freedom individually, not simultaneously. Finally, to correct
for heteroskedasticity, we estimate robust t-statistics using the technique developed by White.
4. ECONOMIC FREEDOM IN INDIA
India, having passed through a long phase of colonial rule till 1947 started its process
of economic development with a protective regime since 1950s. It adopted development
strategy, which emphasized government planning of macroeconomic and sectoral
development, industry protection (import substitution and/or export promotion) and stateowned enterprises (World Bank, 1997). By the 1980s, it became clear that the results of statedominated development were not very encouraging. Consequently, the first phase of
economic reforms was set in mid-1980s with restrictive withdrawal of the government from
the free play of market forces. However, comprehensive economic reforms were brought into
force only in 1990s. These reforms emphasized on a free market economy and consequently,
attempts were made to reduce government intervention in as many areas as possible.
Adoption of the economic reform programmes in the early 1990s brought about the
changes that took place in the structure and growth rate of GDP. Since 1991, India has
undergone a great deal of liberalization internally and externally. The academic literature
often refers to first and second generation reforms (Jha, 2009). First generation reforms
include the external sector (where the first flush of reforms was introduced in 1991), while
second generation reforms pertain more to the domestic economy. Besides, first generation
reforms often refer to agenda items that are under the purview of the central government (such
as product markets), whereas second generation reforms primarily emphasize on agenda items
falling within the purview of the states (such as markets for land and labour).
These reforms have brought about an improvement in the scores of economic freedom
over time with 5.1 in 1990 to 6.4 in 2008 (Table 1). All the indicators of economic freedom
have shown a constant improvement since 1990 except access to sound money. The score of
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access to sound money has shown fluctuations with scores of 6.6, 6.5, 6.8 and 6.6 in 1990,
1995, 2000 and 2008 respectively. It is thus understandable that India’s scores on economic
freedom have improved over time. The individual indices which measure the extent of
freedom from restrictions imposed by government in India have shown improvement over the
period of time (Debroy et. al 2011).
Table 1: India’s performance in economic freedom and economic growth 1970-2008
Economic Freedom
GDP
Legal
PerStructure,
Access to
Freedom to
Regulation of
Growth capita
Year
Size of
Security of
Sound
Trade
Labour and Summary Rate of Growth
Government Property Rights Money Internationally
Business
Rating GDP Rate
1970
1975
1980
1985
1990
1995
2000
2005
2008
5.9
4.9
5.0
4.5
4.9
6.3
6.8
6.7
6.8
4.4
2.6
6.3
5.4
4.8
5.9
6.0
6.4
5.9
6.7
6.4
6.3
6.6
6.6
6.5
6.9
6.8
6.7
4.0
4.3
3.7
4.0
4.7
5.5
6.5
6.8
5.2
4.8
5.2
5.2
5.3
5.5
6.1
6.4
6.2
5.4
4.6
5.4
5.1
5.1
5.8
6.3
6.6
6.5
5.2
9.1
6.7
5.2
5.5
7.6
4.0
9.4
6.1
2.8
6.7
4.4
3.1
3.4
5.7
2.3
7.9
4.7
Source: Economic Freedom of the World: 2010 and Central Statistical Organisation
4.1 Economic Freedom, Economic Growth and Growth of Per-Capita Income across
Major Indian States
India is a large country encompassing perceptible differences across its constituent
states, possibly due to differences in their socio-political and institutional arrangements. One
effect of post-1991 reforms has been to shift the focus of policy change to the level of the
states. Therefore, the national scenario may not truly represent the scenario of the states.
Moreover, economic reforms have not made equal dent across all the states of the country.
While some states have been more pro-active towards adopting reforms agendas, some others
have been laggards consistently. Consequently, some states have grown faster than others and
some states are found to be economically freer than others. The study on economic freedom
and economic growth, thus, needs to focus on these inter-state differences.
The variation in overall economic freedom and economic growth across the major
states for 2009-10 is illustrated in figure 2. Economic freedom ranged from a low of 0.23 in
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Bihar to a high of 0.59 in Tamil Nadu, with an average value of 0.38 in the year 2009-10.Only
three states Gujarat, Andhra Pradesh and Tamil Nadu exhibit higher economic freedom over
0.5 whereas, majority of the states fall below the average figure of 0.38. Corresponding to the
level of economic freedom, the overall growth rates of GSDP across states have displayed a
fair degree of variation during the period under consideration. While some states have
witnessed phenomenal growth, the rest have lagged far behind that achieved even at the allIndia level. The states like Gujarat, Orissa, Uttaranchal and Chhattisgarh have registered over
10 percent growth rate per annum for the period 2009-10, while Rajasthan, Karnataka and
Andhra Pradesh have stayed far behind with a growth rate of less than 6 percent. However,
majority of the states exhibit a reasonable growth rate between 6 to 8 percent. Gujarat is the
only state which has shown very high growth rate with high economic freedom whereas most
of the other states exhibit a mismatch. Turning to the components of economic freedom, there
are glaring differences in individual areas of economic freedom which is not only abysmally
low but also unequal across major states (Table A2). In economic freedom and growth of per
capita income, the trend observed (Figure 3) is similar to that in the case of economic freedom
and economic growth across the states.
There is evidence that economic freedom in India does not seem to be improving.
There is a clear mismatch in the growth rate and per capita income and economic freedom. As
India opens up its national markets to international investment and commodity flows, it
cannot afford to constrain its own entrepreneurs from benefiting from the great opportunities
available. For this, reforms process may require a reorientation and greater economic freedom
must be ensured at the national, state and local levels.
Figure 2: Economic freedom and economic growth in India across major states 2009-10
Economic Growth in India (2009)
Economic Freedom in India (2009)
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Economic Freedom Index:
Economic Growth rate
0.2-0.3
<6
0.31-0.4
6.1-8
ISBN : 9780974211428
0.41-0.5
8.1-10
0.51-0.6
10.1>
Not Studied
Not Studied
Source: Economic Freedom of the States of India 2011 and Central Statistical Organisation
Figure 3: Economic freedom and per capita income in India across major states 2009-10
Growth of Per capita Income (2009)
Economic Freedom in India (2009)
Economic Freedom Index:
Growth of Per Capita Income
0.2-0.3
<4
0.31-0.4
4.1-6
0.41-0.5
6.1-9
0.51-0.6
9.1 >
Not Studied
Not Studied
Source: Economic Freedom of the States of India 2011 and Central Statistical Organisation
5. THE EFFECT OF ECONOMIC FREEDOM ON GDP AND GDP PER CAPITA IN
INDIA
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The key variables of interest of this study are economic freedom and economic
freedom indices. The results regarding the effect of overall economic freedom on economic
growth are presented in column 1 of table 2. The coefficient of the overall economic freedom
index is positive and significant, indicating thereby that higher levels of economic freedom
tend to achieve higher economic growth across the states.
The results for the economic freedom indices for areas 1, 2, and 3 are shown in
columns 2, 3 and 4 of table 2, respectively. Considering the economic freedom index for the
size of government (area 1), the fundamental assertion is that the lower the government’s
intervention, the better it is from the point of view of economic freedom which leads to higher
economic growth. The coefficient of this index is positive and significant revealing thereby
that states with lower government spending as a share of the total, a smaller government
enterprise sector and lower marginal tax rates are likely to attain greater economic growth.
The coefficient estimates of the area 2 (legal structure and security of property rights) for
economic freedom index, is positive but statistically not significant. The primary assertion is
that ensuring law and order and justice and protecting property is a core governance area. The
coefficient estimates on the economic freedom index for area 3 (regulation of labour and
business) are positive and statistically significant. This area of economic freedom primarily
reflects state intervention in labour markets and bureaucratic and procedural costs, including
physical infrastructure. They all have significant bearing on determining the level of economic
growth. This implies high flexibility in the labour market tends to increase the output growth.
All three areas of economic freedom indices are also taken simultaneously to check the
robustness of the model. The regression exerts the same results (Table 2, column 5) showing
coefficients of area 1 and 3 of economic freedom indices as positive and statistically
significant.
Table 2: Relationship between economic freedom index components and economic growth
Level of GSDP
Variable
Economic freedom
Economic freedom (Area 1)
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1
1.50*
(3.46)
2
0.83**
(2.36)
3
4
5
0.73**
(2.19)
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Economic freedom (Area 2)
0.37
(1.47)
Economic freedom (Area 3)
0.24
(1.01)
0.77*
(2.67)
0.67**
(2.36)
Constant
4.51*
4.74*
4.93*
4.81*
4.46*
(26.99)
(31.99)
(45.87)
(44.85)
(25.03)
Adjusted R2
0.17
0.07
0.01
0.09
0.15
F -Statistics
11.97*
5.58**
2.15
7.12*
4.56*
Standard Error of the Model
0.33
0.34
0.35
0.34
0.33
No. Observations
60
60
60
60
60
Note: * Denotes significance at the 1 percent level, ** at 5 percent. Absolute t-statistics are listed in parentheses.
Furthermore, with a view to examine the impact of economic freedom on per capita
income in India, study is carried out following an identical procedure (Table 3). The results,
by and large, follow the expected lines. To be specific, higher levels of economic freedom
lead to higher per capita income across the states, the coefficient of the overall economic
freedom index being positive and significant. The findings support the notion of a positive
relationship between economic freedom and per capita income. The results for the economic
freedom indices for areas 1, 2, and 3 are shown in columns 2, 3 and 4 of table 2, respectively.
All the three areas of economic freedom seem to be powerful explanatory variables for per
capita income growth. All three areas of economic freedom indices are taken simultaneously
to check the robustness of the model as well. As expected, similar results are observed (Table
3, column 5).
Table 3: Relationship between economic freedom index components and per-capita GSDP
Level of Per-capita GSDP
Variable
Economic freedom
1
0.97*
(4.49)
Economic freedom (Area 1)
2
3
0.57*
(3.22)
Economic freedom (Area 2)
0.31*
(2.43)
Adjusted R2
F -Statistics
Standard Error of the Model
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4.05*
(48.65)
0.24
20.16*
0.16
4.18*
(55.61)
0.13
10.34*
0.17
5
0.52*
(3.10)
Economic freedom (Area 3)
Constant
4
4.29*
(78.21)
0.07
5.91*
0.18
0.25**
(2.10)
0.37**
(2.40)
0.28**
(1.98)
4.29*
(75.14)
0.07
5.74*
0.18
4.01*
(45.23)
0.24
7.26*
0.16
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No. Observations
60
60
60
60
60
Note: * Denotes significance at the 1 percent level, ** at 5 percent. Absolute t-statistics are listed in parentheses.
6. SUMMARY AND CONCLUSIONS
Economic freedom is considered as one of the major determinants of economic growth
and development. A more recent line of research has attempted to explain economic freedom
and economic outcomes across cross-temporal and cross-country cases. However, empirical
models of sub-national level have ignored the importance of economic freedom in explaining
differences in the pattern of economic developments of sub-national jurisdictions. In a federal
system like India, economic and political institutions, such as business regulation, taxation,
and government spending, differ across state governments just as they do across national
governments. This study taking major Indian states into consideration has attempted to
examine the impact of economic freedom on the economic growth. The study has not only
tested the effect of aggregate economic freedom on economic growth, but also considers how
each of the sub-areas of aggregate economic freedom influences economic growth across
states.
At this point, a summary of the empirical results regarding the impact of economic
freedom on output growth and per capita income of major Indian states is worthwhile. The
results clearly indicate that greater economic freedom can ensure greater economic growth
and high per capita income across states in India. Low intervention of the government in the
free play of market forces can enhance growth and per capita income. Flexible regulations
governing credit, labor, and product markets has some impact as well. There is, however, no
evidence of the legal structure exerting any impact on output growth, whereas it has a positive
effect on per capita income.
Further, the results indicate that political and economic policies ought to be taken up to
ensure enhancement of economic freedom. Policies that increase the market economy within
the framework of a stable legal system, flexible labour market and minimum government
interference need to be formulated across all states. Laggard states need to undertake special
measures to ensure improved freedom so that they can catch up with the better performing
ones. The current growth trajectory is said to have failed to trickle down to a large section of
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the economy and suffers from the criticism of ‘inclusiveness’. Given the nature of emerging
challenges that the country is experiencing, government should consider increasing economic
freedom as a means of higher and inclusive growth.
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ANNEXURE
Table A1: Areas and components of state-level economic freedom in India
Area
Components
Area 1: Size of Government—Expenditures, Taxes and Enterprises
1) Inverse of Government Revenue Expenditure as a Share of Gross State
Domestic Product (GSDP)
2) Inverse of Administrative GSDP as a Ratio of Total GSDP
3) Inverse of Share of Government in Organised Employment
4) Inverse of State Level Taxes on Income as a Ratio of GDP
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5) Inverse of Ratio of State Level Taxes on Property and Capital
Transactions to State GDP
6) Inverse of State Level Taxes on Commodities and Services to GDP
7) Stamp Duty Rate
Area 2: Legal Structure and Security of Property Rights
8) Ratio of Total Value of Property Recovered to Total Value of Property
Stolen
9) Inverse of Violent Crimes as a Share of Total Crimes
10) Inverse of Cases under Economic Offences as a Share of Total Cases
Registered
11) Inverse of Vacant Posts of Judges in the Judiciary as a Ratio of
Total Sanctioned Posts of Judges
12) Percentage Cases where Investigations were Completed by Police
13) Percentage Cases where Trials were Completed by Courts
Area 3: Regulation of Labour and Business
14) Ratio of Average Wage of Unskilled Workers (Males) to Minimum Wages
15) Ratio of Average Wage of Unskilled Workers (Females) to Minimum
Wages
16) Inverse of Man-Days Lost in Strikes and Lockouts/ Total Number of
Industrial Workers
17) Implementation Rate of Industrial Entrepreneurs Memorandum (IEM)
18) Inverse of Minimum License Fee for Traders
19) Inverse of Power Shortage as a Percentage of Total Demand
20) Inverse of Pendency Rate of Cases Registered under Corruption and
Related Acts
21) Persons Arrested as a Share of Total Cases being Investigated under
Prevention of Corruption and Related Acts
Source: Economic Freedom of the States of India 2011
Table A2: Level of economic freedom, growth rate of SGDP and growth rate of per-capita
SGDP across major states of India 2009-10
Economic Freedom
Growth Rate of
Per Capita State
Growth Rate of State
Domestic Product
Domestic Product at
at Constant (1999Constant(1999-2000) Prices
2000) Prices
States
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
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Area 1 Area 2
0.49 0.56
0.51 0.18
0.44 0.11
0.32 0.52
0.69 0.54
0.63 0.45
0.48 0.42
0.43 0.32
0.67 0.24
0.36 0.34
0.49 0.34
0.35 0.62
0.53 0.19
Area 3
0.48
0.19
0.15
0.14
0.49
0.34
0.38
0.39
0.24
0.32
0.25
0.27
0.35
Overall
0.51
0.29
0.23
0.33
0.57
0.47
0.43
0.38
0.38
0.34
0.36
0.42
0.36
5.79
8.08
8.56
11.93
10.23
9.95
8.12
6.48
6.58
4.99
9.73
8.49
8.68
4.69
6.38
8.00
10.53
9.29
8.23
3.69
5.18
4.88
3.47
9.06
6.45
7.12
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Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttarakhand
West Bengal
0.38
0.54
0.44
0.47
0.33
0.25
0.58
0.23
0.34
0.54
0.90
0.39
0.29
0.15
0.31
0.18
0.22
0.41
0.30
0.24
0.25
ISBN : 9780974211428
0.31
0.35
0.40
0.59
0.34
0.26
0.33
10.57
7.84
3.95
8.96
7.22
10.66
8.96
7.27
5.91
2.35
8.21
5.21
8.79
8.19
Source: Economic Freedom of the States of India 2011 and Central Statistical Organisation
June 27-28, 2012
Cambridge, UK
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