|India's labour freedom, as seen by Heritage Foundation|
In a major setback to Prime Minister Narendra Modi’s claimed successes in opening Indian market for foreign investors, the world’s foremost conservative political think tank, Heritage Foundation, has ranked India 143rd in economic freedom index, worse than Pakistan (141st), Bangladesh (128th), Nepal (125th), and Sri Lanka (112th).
Based in Washington DC, Heritage Foundation, in its latest report titled “2017: Index of Economic Freedom”, has found that, among the comparable countries which form BRICS, Brazil ranks 140th, Russia 114th, China 111th, and South Africa 81st -- all better than India.
Interestingly, the Heritage Foundation’s 2016 economic freedom report ranks India 123rd, suggesting India has slipped by a whopping 20 points in just one year.
The report calls India a “significant force in world trade”, but insists, “Corruption, underdeveloped infrastructure, and poor management of public finance continue to undermine overall development” of the country despite the fact that “the economy has sustained an average annual growth rate of about 7 percent over the past five years.”
“Growth is not deeply rooted in policies that preserve economic freedom”, the report believes, adding, “Progress on market-oriented reforms has been uneven.”
The report regrets, “The state maintains an extensive presence in many areas through public-sector enterprises”, adding, “A restrictive and burdensome regulatory environment discourages the entrepreneurship that could provide broader private-sector growth.”
The report underlines, “State-owned enterprises distort the economy. Despite some liberalization and modernization, state-owned institutions dominate the banking sector and capital markets.”
Yet, the report calls India is “a stable democracy”, and praises Modi for “reinvigorating India’s foreign policy”, bolstering “ties with the US, particularly in defense cooperation.”
But it does not fail to mention that “India has technology and manufacturing sectors as advanced as any in the world as well as traditional sectors characteristic of a lesser developed economy”, adding, “Extreme wealth and poverty coexist as the nation both modernizes rapidly and struggles to find paths to inclusive development for its large and diverse population.”
The report further says, “Real property rights are generally well enforced in metropolitan areas, although titling remains unclear in many other urban and rural areas”, adding, “The judiciary is independent, but courts are understaffed and lack the technology necessary to clear an enormous backlog.”
The report says, it is “domestic and international pressure” alone which led to the “passage of legislation aimed at addressing corruption”, but adds, “There is little evidence that it is being implemented effectively.”
Suggesting that the taxes are high, the report emphasises, “The top individual income tax rate is 30.9 percent (including an education tax). The top corporate tax rate is 34.6 percent. The overall tax burden equals 16.6 percent of total domestic income.”
It adds, “Government spending has amounted to 27.4 percent of total output (GDP) over the past three years, and budget deficits have averaged 7.3 percent of GDP. Public debt is equivalent to 67.2 percent of GDP.”
“The regulatory framework is burdensome, and the legal framework is weak”, the report states, adding, “Labour regulations continue to evolve, and the informal economy is an important source of employment.”
The report is critical of the Government of India depending heavily of subsidies, saying, “Although the IMF reported in 2016 that India’s ‘major subsidies’ (e.g., on fuels and fertilizer) dropped below 2 percent of GDP, the government is introducing a new basic foods subsidy for around two-thirds of the population.”