January 5, 2006Economy

At #121, the Indian economy is still mostly unfree

And it has to keep running to stay still

This is an archived blog post from The Acorn.

India maintains its position on the Heritage Foundation’s 2006 Index of Economic Freedom. At #121, it is still mostly unfree. It also lags behind Sri Lanka (#92), Pakistan (#110) and China (#111). Despite improving its score by approximately 1%, it remained at the same relative position. What this suggests is that in a world which is increasingly become more free economically, India has to run faster just to stay where it is. By way of comparison, China improved its own score by about 4%. Pakistan, with an improvement of almost 10%, registered the greatest change among all the 155 countries.

Despite concerns that the Congress Party–led United Progressive Alliance might hinder economic reforms to appease its leftist partners, progress continues, albeit slowly. Peace dialogues with Pakistan, including discussions about forging closer economic ties, are ongoing. In 2005, foreign investors hailed the scrapping of Press Note 18, which required foreign companies to secure permission from local joint venture partners before setting up an intra-industry rival. While tax rates are still too high, some are being reduced. The Congress Party remains committed to selective privatization. To meet India’s growing energy needs, plans are underway to restructure state-owned oil and gas firms, including allowing private-sector competition. Recent discussions with Wal-Mart and other global chains indicate that India might soon relax its ban on foreign investment in the retail sector. India’s labor laws, which require companies employing more than 100 employees to seek government permission to fire employees, remain an obstacle to exploiting India’s full economic potential in both the manufacturing and service sectors. Nevertheless, the continued commitment to economic reform displayed by Indian leaders of all stripes indicates that there are grounds for cautious optimism about the long-term prospects for successful economic reform. [Heritage Foundation]

Related Posts: On the 2005 Index; On Cato’s Economic Freedom Index 2005; On why economic freedom is important.

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