The states are ranked on various parameters like size of the government, legal structure and security of property rights and regulation of business and labour.

Gujarat tops the list of states in terms of economic freedom, improving its position from fifth place in 2005.

"Gujarat is not only the freest state, but it has also registered the fastest rate of improvement (from 0.46 to 0.65),” the report on Economic Freedom of the States of India (EFSI) by Cato Institute said.

The three states recording the fastest improvement in economic freedom have been among the fastest-growing states. Growth has averaged 12 per cent in Gujarat.

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Tamil Nadu

Rank: 2

Score: 0.54

After Gujarat, Tamil Nadu bags the second position.

The study states that the states have become freer over time.

The median score for economic freedom among states had earlier declined from 0.38  in 2005 to 0.36 in 2009, but has now improved to 0.43.

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Andhra Pradesh

Rank: 3

Score: 0.50

The second fastest improver is Andhra Pradesh (from 0.40 to 0.50)," said the report.

The report, jointly authored by economists Ashok Gulati, Bibek Debroy, Laveesh Bhandari and journalist Swaminathan Aiyar, is based on an index which takes into account parameters like size of the government, legal structure and security of property rights and regulation of business and labour.

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Haryana

Rank: 4

Score: 0.49 

Haryana suffered a significant fall in economic freedom. Haryana ranks first in relation to size of government.

It has also been one of the most rapidly growing states of India and has attracted large investments in the services sector and manufacturing.

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Himachal Pradesh

Rank: 5

Score: 0.47

Himachal Pradesh has emerged as one of the top performers in 2013. It has moved up from 10th rank in 2011 to 5th rank in 2013.

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Madhya Pradesh

Rank: 6

Score: 0.47 

One of the best governed states, Madhya Pradesh scores on legal structure and security and size of government.

The growth in GDP has not been commensurate with the increase in the size of the government, the stuffy points out.

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Rajasthan

Rank: 7

Score: 0.46 

Rajasthan has shown much improvement in economic freedom, moving up from 12th to 7th position.

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Chhattisgarh

Rank: 8

Score: 0.44 

The biggest improvement has been recorded by Chhattisgarh, which has moved up from 16th to 8th position.

"This state has an even worse problem of Maoism than Jharkhand, but has shown that improved governance and rapid gross domestic product (GDP) growth are nevertheless possible in such difficult circumstances," the report said.

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Karnataka

Rank: 9

Score: 0.43 

Karnataka scores high on regulation of labour and business. Improvements in economic freedom require wide-ranging reforms, not just excellent performance in  one or two areas, the report states.

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Kerala

Rank: 10

Score: 0.42

Kerala has sharply improved its index value, from 0.27 to 0.42 in two years. 

An rise in the market wage rate is a major reason.

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Maharashtra

Rank: 11

Score: 0.42 

Maharashtra has seen moderate improvements (ranging from 0.01 to 0.09  points).

Maharashtra is among the better performers; the size of  the government has not increased as much as economic growth in recent years. 

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Jammu & Kashmir

Rank: 12

Score: 0.41 

Jammu & Kashmir had a major setback this year.

The slowest growing state has seen a fall in GDP as well.

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Punjab

Rank: 13

Score: 0.40 

Punjab's rank has slipped substantially, from 6th to 13th position.

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Uttarakhand

Rank: 14

Score: 0.39 

Uttarakhand has suffered a significant decline in their index values since 2011. Poor police investigations and low rates of recovery of stolen property are factors leading to this decline, says the Cato report. 

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Odisha

Rank: 15

Score: 0.36 

Odisha has seen a moderate fall in their ratings (0 to 0.02 points). Improvements in economic freedom require wide-ranging reforms.

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Uttar Pradesh

Rank: 16

Score: 0.36 

Uttar Pradesh was second-worst in 2005 (at 19th position) and has now improved to 13th position.

It has shown improved performance in registration of cases under the Prevention of Corruption Act. 

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West Bengal

Rank: 17

Score: 0.35 

West Bengal is among the worst performers this year.

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Jharkhand

Rank: 18

Score: 0.33 

Jharkhand has worsened more than any other state, with its index score falling from 0.40 in 2005 to 0.33 in 2013. Because of this, it has slipped from 8th position to 18th.

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Assam

Rank: 19

Score: 0.32

Assam remains at 19th position. Its economic growth rate has also fallen.

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Bihar

Rank: 20

Score: 0.31 

"Bihar has long been last in this league and continues to be last despite significant improvement after Nitish Kumar became Chief Minister in 2005," states the report.