Singapore tops economic freedom index; why is India at 120th place?

Singapore overtook Hong Kong as the world's freest economy for the first time since 1995 in the latest Heritage Foundation Index of Economic Freedom published last week.

By Lee Kah Whye

Singapore, Mar 23 : Singapore overtook Hong Kong as the world's freest economy for the first time since 1995 in the latest Heritage Foundation Index of Economic Freedom published last week.

The Index was first published in 1995 and Hong Kong has topped the charts ever since; that is until this year.

Created by the Heritage Foundation and The Wall Street Journal, the annual index measures the degree of economic freedom in the world's nations. The creators of the index took an approach like Adam Smith's in The Wealth of Nations, that "basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society."

The Heritage Foundation is an American conservative research and educational institution founded in 1973 to promote public policy based on principles including that of free enterprise, limited government and individual freedom. In the 26 years since the Index was published, it claims a positive correlation between economic freedom and progress.

The World Index of Economic Freedom covers 12 freedoms including property rights, financial freedom, government integrity, labour freedom, trade freedom, investment freedom and business freedom. Altogether the study encompasses 186 countries.

Of note is that based on the latest Heritage Foundation report, the average score in the index is at its highest level in history and the overall global commitment to free-market reform is stronger than ever.

Hong Kong lost its title as the number one freest economy due to a decline in its score for investment freedom. Hong Kong's total score fell from 90.4 to 89.1 whereas Singapore maintained its 2019 score of 89.4 to take the 2020 title.

The Washington-based think-tank commented that: "Hong Kong's economy was rated the freest in the world from 1995 through 2019. The ongoing political and social turmoil has begun to erode its reputation as one of the best locations from which to do business, dampening investment inflows."

"GDP had been growing steadily over the past five years, but the territory fell into recession in 2019. Hong Kong's traditionally open and market-driven economy has become increasingly integrated with the mainland through trade, tourism, and financial links. Risks to Hong Kong's economic freedom have grown correspondingly," it added.

Singapore, its long-time regional rival, came in first as its score held steady compared with last year.Edward Yau, Hong Kong's secretary for commerce and economic development, was quoted by Bloomberg as saying to reporters last Tuesday that he expects to see a rebound in the rankings. "I can confidently say that the conditions that have long made Hong Kong a place with a high level of economic freedom won't change because of what we experienced in the past."

The city's economy is forecast to contract for a second year after it fell into its first annual recession in a decade in 2019, facing fallout from the protests and the coronavirus.

"Intensifying uncertainties related to security issues have undermined an otherwise favourable investment climate," the report said. "The territory remains a dynamic global financial centre with a high degree of competitiveness and openness, but the sense of risk is also heightened."

The Heritage Foundation report says of Singapore that: "Its sustained extraordinary performance has resulted in one of the world's highest per capita incomes and solid rates of GDP growth. Singapore is the only country in the world that is considered economically free in every Index category. Ongoing restrictions on civil liberties, while not directly affecting the country's score, may have an indirect impact on economic freedom and remain a concern."

Although India is ranked in 120th position in the study, it has been slowly but steadily making progress. It improved its score by 1.3 points from 2019 to tally 56.5 in 2020 due to improvements in the business freedom score. India's score in 2017 was 52.6. It is the 28th freest economy among 42 countries in the Asia-Pacific region in the 2020 study.

China, India's strategic regional rival is in 20th position in Asia-Pacific and 103rd globally.

The Heritage Foundation remarked that India's economy "has languished in the mid-range of the mostly unfree category for nearly two decades. GDP growth over the past five years, however, has been robust. As the country continues to benefit from the effects of economic liberalisation, economic growth has been driven by higher private domestic consumption."

The report further suggested that to improve its position in the economic freedom index, it must take steps to improve India's fiscal health, correct inadequacies in banking regulation and begin to privatise state-owned banks to increase financial freedom. Reforms in tax code, the investment regime and labour code would also see India scoring higher in the Index.

"India's positive reforms have made it easier to start a business, deal with construction permits, get electricity, obtain credit, pay taxes in Delhi and Mumbai, and trade across borders. Labour regulations are in flux and vary across the country. The government came under pressure in 2019 to reduce subsidies for fuel and agricultural commodities such as sugar, as well as general export subsidies," the report stated.

( With inputs from ANI )