Economic Freedom: India's top 20 states

With India benefiting from sustained high growth as a result of liberal reforms, it is important to measure the diverse levels of economic freedom in various Indian states.

The report on the Economic Freedom of the States of India is the latest in a series of annual surveys on the economic freedom of Indian states, which started in 2004. The latest report takes 2009 as the period under review.

The index of economic freedom devised for this series 'is derived from the Fraser Institute's Economic Freedom of the World report, with adjustments for data relevant to subnational entities, and whose design benefited from critical input from the Fraser Institute and the authors of the Economic Freedom of the World report'.

The report has been authored by noted economist Bibek Debroy, Laveesh Bhandari of research firm Indicus Analyctis, and columnist Swaminathan S Anklesaria Aiyar.

More economic freedom means greater wealth, higher growth, and improvement in a range of human development indicators, says the authors of the report.

The uneven levels of economic freedom in India can be a major indicator to state-level policymakers that much needs to be done to improve the welfare of citizens.

The report has been co-published by the Washington-based think tank Cato Institute, leading Indian economics research firm Indicus Analytics, and the non-profit organisation Friedrich Naumann Foundation.

Click NEXT to find out which are India's 20 most economically free states . . . 

1. Tamil Nadu
Overall average: 0.593
Rank in 2005: 1

The Dravida Munnetra Kazhagam may be hogging headlines for giving headaches to the United Progressive Alliance government at the Centre, but when it comes to governing Tamil Nadu, DMK scored highest so far as economic freedom is concerned.

Tamil Nadu retained the top slot in a ranking of 20 states from 2005 to 2009.

In legal structure and security of property rights, the top three states in 2009 are Tamil Nadu, Madhya Pradesh and Andhra Pradesh and the bottom three are Bihar, West Bengal and Assam.

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2. Gujarat
Overall average: 0.574
Rank in 2005: 5

The Narendra Modi-led government in Gujarat may be accused of many counts on political freedom, but the state progressed from 5th position in 2005 to 2nd in 2009.

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3. Andhra Pradesh
Overall average: 0.509
Rank in 2005: 7

After former Andhra chief minister YSR Reddy's death, Andhra Pradesh might take time to see emergence of an equally tall leader and the political landscape there may have been marred by the movement for Telangana.

However, the state moved fastest in the ranking of the Economic Freedom of the States of India over the period under review. The state occupied third position in 2009 against seventh in 2005.

Its index score went up from 0.40 to 0.51 on a scale from 0 to 1, an improvement of 27.75 per cent.

However, Andhra Pradesh's ranking in the index next time may be interesting to watch since Reddy died in September 2009, leaving only a quarter of the year for the successor.

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4. Haryana
Overall average: 0.473
Rank in 2005: 4

Haryana has maintained its rank on economic freedom at no. 4 in 2009 too.

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5. Himachal Pradesh
Overall average: 0.428
Rank in 2005: 3

Himachal, which was ranked no. 3 in terms of economic freedom in 2005, slipped two levels to no. 5 in 2009.

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6. Madhya Pradesh
Overall average: 0.417
Rank in 2005: 2

For Madhya Pradesh, the slide was steeper as it slipped from the second (in 2005) to the sixth spot in 2009.

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7. Rajasthan
Overall average: 0.401
Rank in 2005: 12

Rajasthan showed significant progress to jump up the rankings table, from no. 12 rank in 2005 to no. 7 rank in 2009.

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8. Jharkhand
Overall average: 0.384
Rank in 2005: 8

As regards size of government, the top three states in 2009 are Gujarat, Jharkhand and Haryana.

The bottom three are Uttarakhand, Chhattisgarh and Uttar Pradesh, in reverse order.

Jharkhand may seem to be a bit of a surprise, but the point is that the state witnessed high economic growth without a concomitant increase in the size of the government.

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9. Jammu and Kashmir
Overall average: 0.379
Rank in 2005: 15

The troubled state of Jammu and Kashmir showed excellent improvement, jumping from the 15th spot in 2005 to the 9th in 2009.

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10. Kerala
Overall average: 0.358
Rank in 2005: 10

Kerala, Bihar, Jharkhand, Karnataka, Uttar Pradesh, Assam and Chhattisgarh showed moderate declines in economic freedom.

Despite that, however, Kerala maintained his no. 10 rank.

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11. Maharashtra
Overall average: 0.356
Rank in 2005: 9

Maharashtra, known as the financial capital of the country, is still the laggard so far as the index, developed on the lines of the Fraser Institute's Economic Freedom of the World report, is concerned. The state further slipped to 11th position from ninth in 2005.

Its record is quite dismal, when seen in the context that once there were efforts to develop Mumbai as an international financial centre.

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12. Punjab
Overall average: 0.351
Rank in 2005: 6

The states that dropped in rankings are Madhya Pradesh, Orissa, Uttarakhand, Punjab and Himachal Pradesh.

Punjab, once among the best performers, fell from sixth position in 2005 to 12th position in 2009. The report said that Punjab had been riding too long on its earlier successes, and its present track record on governance, broadly defined, was anything but satisfactory.

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13. Karnataka
Overall average: 0.344
Rank in 2005: 13

India's information technology powerhouse, Karnataka too maintained its rank at no. 13, but showed no appreciable increase in economic freedom during the period 2005 to 2009.

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14. Uttar Pradesh
Overall average: 0.340
Rank in 2005: 14

Uttar Pradesh was ranked 14th in 2005 in terms of economic freedom and it continued to remain at the same spot in 2009 too.

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15. West Bengal
Overall average: 0.329
Rank in 2005: 18

West Bengal jumped 3 spots up on the ranking ladder, from no. 18 in 2005 to no. 15 in 2009.

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16. Chhattisgarh
Overall average: 0.326
Rank in 2005: 16

Chhattisgarh showed little improvement in economic freedom and continued to be ranked 16th in the state index of economic freedom.

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17. Orissa
Overall average: 0.306
Rank in 2005: 11

For Orissa, the slide was very steep as from the 11th spot in 2005 the state slipped to number 17 by 2009.

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18. Assam
Overall average: 0.292
Rank in 2005: 19

Assam managed to show some improvement in economic freedom, gaining a spot and moving up from 19th spot in 2005 to 18th in 2009.

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19. Uttarakhand
Overall average: 0.260
Rank in 2005: 17

Uttarakhand slipped two spots to 19th in 2009, from 17th in 2005.

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20. Bihar
Overall average: 0.233
Rank in 2005: 20

Bihar continues to languish at the 20th spot in terms of economic freedom in 2009 too. And this despite the development plank on the basis of the current Nitish Kumar-led government was voted back to power for a new five-year term.