TN tops states list on economic freedom index

Tamil Nadu, Gujarat, Haryana, Andhra Pradesh and Kerala, which are among the top six states in the country on the composite economic freedom index, have high ratios of taxes on commodities and services to their gross state domestic product (GSDP).

West Bengal, Jharkhand, Bihar and Assam did not generate a large proportion of their revenue from this head, pointed out "Economic Freedom for States of India 2005", a study by Bibek Debroy and Laveesh Bhandari.

Tamil Nadu topped a list of 20 states on the Composite Economic Freedom Index. Gujarat, the top-ranked state last year, slipped to the second position, while Kerala was ranked third.

The study said income tax and other taxes acted as constraints on economic freedom. "In an economically free state, individuals have the right to receive fully the returns from their efforts, whether manual or intellectual," it said.

It was observed that in Assam, Chhattisgarh, Andhra Pradesh, Madhya Pradesh and Maharashtra, income tax revenue as a ratio of the GSDP were quite high, while tax revenue accounted for a small share of the GSDP in Haryana, Kerala, Tamil Nadu and Uttar Pradesh. Further, revenue from taxes on property and capital transactions as a ratio of the GSDP were found to be higher in Haryana, Karnataka, Kerala, Maharashtra and Uttar Pradesh, compared with Jammu and Kashmir, Jharkhand and Himachal Pradesh.

The study also pointed out that higher stamp duty in Orissa, Haryana, Bihar, Jharkhand, Karnataka, Uttar Pradesh and Uttaranchal also indicated lower economic freedom. Himachal Pradesh, Rajasthan, Bihar, Tamil Nadu and Andhra Pradesh were among those with the least power shortage, while Gujarat, Punjab, Uttar Pradesh and Maharashtra counted among the poor performers on this front. "A severe constraint on business can be a power shortage at the peak production hours and hence this variable is taken as an indicator of economic freedom," the report said.

The study said units in West Bengal, Rajasthan, Karnataka and Kerala lost the maximum number of mandays to strikes and lockouts as a ratio of the total industrial workforce in the state. Gujarat and Maharashtra imposed lower constraints on trade through low minimum licence and market fees. Post-reforms, Assam, Haryana, Rajasthan and West Bengal witnessed the highest implementation rates for Industrial Entrepreneurs' Memorandum (IEM), while Uttaranchal, Orissa, Bihar and Chhattisgarh saw a large number of IEMs not being implemented.

The study said labour markets indicated lower economic freedom in Haryana, Punjab and Gujarat, which had a low ratio of unorganised to organised workforce. Bihar, Jammu and Kashmir and Orissa had the lowest ratios.

Gujarat, Bihar, Maharashtra, Kerala and West Bengal showed very low recovery rates for stolen property, while Tamil Nadu and Haryana were at the other end of the spectrum. Protection of property rights is an essential ingredient of economic freedom.

The study said Tamil Nadu, Gujarat, Andhra Pradesh and Madhya Pradesh had a relatively small size of government, but Kerala fared the worst amongst the top five states.

Another measure of the size of government - the contribution of government services to the GSDP - was found to be on the lower side in case of Gujarat, Haryana, Karnataka and Jharkhand.

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THE WINNERS

I-T revenue: Assam, Chhattisgarh, Andhra Pradesh, Madhya Pradesh, Maharashtra

Property taxes revenue: Haryana, Karnataka, Kerala, Maharashtra, UP

Higher stamp duty: Orissa, Haryana, Bihar, Jharkhand, Karnataka, UP, Uttaranchal

Lowest trade constraints: Gujarat, Maharashtra (Revenue as a ratio of the gross state domestic product)