Economic Freedom of States of India- Gujarat Story

The principal opposition party has unleashed its campaign blitzkrieg on its trump card of “Gujarat Model of development”, the achievements of which are largely contested by rest of the political parties. As several development parameters in terms of Human Development Index haven’t put Gujarat in forefront. Hence the basis of the projection of this particular state is under scanner. Incidentally, the state doesn’t figure in the list of 7 most developed states in India as per Raghuram Rajan committee. With the result critics have seriously derided the achievements of the state as Goa and Kerala being rated as the most developed states. The methodology employed by the committee is multidimensional index (MDI) wherein 28 states are categorised as least developed, less developed and relatively developed. Gujarat was under the less developed category with mediocre performance.

The Cato Institute along with the Friedrich Naumann Foundation in New Delhi and Indicus Analyticus has published the Annual Economic Freedom of the States of India (EFSI) written by Bibek Debroy, Laveesh Bhandari and Swaminathan S Anklesaria Aiyar. EFSI rates Gujarat as India’s top state in economic freedom. In 1980’s work has been initiated by the Fraser Institute to measure the Economic Freedom of the World (EFW) as economic freedom is associated with greater wealth, higher growth and improvements in human development indicators. EFW is also a measure of human progress and its role in sustaining civil and political liberty.   Economic Freedom of India has begun to surge with the opening of the markets in 1990 as the human development indicators have shown a marked improvement. But the position has slipped in the recent years and it is currently ranked at 111^th position among the 152 countries. Incidentally India has slipped from 76^th position in 2005. In spite of the significant decrease of the economic freedom of the country, the notable achievement has been a considerable improvement in economic freedom of different states in India.

The EFSI calculated for 20 large states of India is based on three parameters where state has direct control and any improvement in any of these issues would have a sizeable impact. They are size of the government: expenditure, taxes and enterprises; legal structure and security of property rights; and regulation of business and labour. The index indicates a direct correlation between the economic freedom and the well- being of the individuals.   Economic Freedom Index (EFI) of different countries was found to be a valid indicator of the social progress and hence this study has been extended to different states of India as well.  In general, higher economic freedom indicates better or higher per capita income for its citizens, lower unemployment rates, better sanitation facilities and are the states which attract more investment even. Though economic freedom is not synonymous to good governance, absence of economic freedom indicates poor governance- a typical situation, where state is burdened by the excesses of the bureaucracy, inordinate delays, massive corruption or in short prevalence of jungle raj. This indicates that better governance can vouch for greater economic freedom.

EFSI of 2013 indicates that Gujarat has been at the top of the table consistently for three years separated distantly from Tamilnadu. On the scale of the 0 to 1, Gujarat is at 0.65 with Tamilnadu at 0.54 in second position. Gujarat pegged at 5^th position with 0.46 in 2005    has climbed to the first place. Next best state as per the index is Andhra Pradesh, which is currently at third position in the table has average growth rate of 10.4% while Gujarat averaged at 12%. The report assumes greater significance as good governance proclaimed during the election campaign is not farce.

Gujarat has recorded successes in agriculture, social welfare programmes and water resource management. Other vital and key aspects of governance  which are assessed this includes: efficiency of government in protecting human life and property, quality of the justice mechanism, the availability of judges, completion of cases by courts and police investigation. It is also evaluated by the recovery of the stolen property and rate of violent and economic crimes. Gujarat government has been accused of favouring businessmen by offering sops especially land at cheaper prices. In this context it is important to evaluate the other important variables of business that are in ample supply in the state. The cost of business is affected by an increase in transaction. The state ensured efficient and quicker transaction processes by preventing bureaucratic delays, implementation of Industrial Entrepreneur Memorandum (IEM) and good infrastructure. Gujarat registered a sharp decline in the man-days lost due to strikes and lock-outs, higher wage rates as compared to minimum wages and decline in pendency of cases (prompt judgment).

 

Gujarat has consistently maintained higher weighted averages in regulatory and legal arenas. It is not a typical free- market state characterised by large and expanding public sector enterprises. It has welfare programmes in place but subsidies are much lesser when compared to other states. Farmers are charged for power with a guaranteed supply 24x7. While Andhra Pradesh is in third position not for any marked improvement in any of the areas but due to significant under performance of other states. Overall median performance of Indian states has improved from 0.38 in 2005 to 0.43 in 2011. Even the poverty rate of Muslims (11.4%) is much lesser than Hindu for Hindus (17.6%).

This entire exercise of assessing the states takes into consideration not just the growth or excellent performance in one or two aspects but an overwhelmingly large range of factors. Hence performance of Gujarat in individual aspects may not be outstanding but when a range of indicators are considered it has emerged as the winner indicating an well- rounded improvement in all aspects of governance.

Eventually 21 different variables encompassing diverse aspects of economic freedom are utilised to obtain the composite freedom index in 20 large states in India (as data for other smaller states were not available). There are various studies that could individually measure the well being of the state but till now the no efforts or studies have evolved to measure the governance. This study has been unique in this way. This has also emphasises that greater centralisation of power has been impinging the freedom of states. It recommends decentralisation not only in union-state relations but also decentralisation and devolution of power within the state to empower the third tier of governance, the local governments. Though the state doesn't present the perfect picture of good governance but its ability to maintain communal peace post 2002 riots, renewed efforts to walk through the path of development are undoubtedly the traits of good governance.

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