Economic freedom is India’s real path to Viksit Bharat

The 2026 Economic Freedom of the World (EFW) report, released last week by the Canada-based Fraser Institute, ranked India 88th out of 165 countries with a score of 6.62 out of 10.

The report highlights the strong link between economic freedom and GDP per capita.

The difference is stark; countries in the economically freest quartile earn 6.9 times as much as those in the least-free quartile. India ranks in the third quartile. To meet the Viksit Bharat target, India will need to undertake a reform journey that significantly increases economic freedom.

Economic freedom as a measure of reform

The EFW report measures economic freedom based on a country’s performance in five areas: size of government; legal system and property rights; sound money; freedom to trade internationally; and regulation.

These areas are scored using over 40 indicators and sub-indicators. Some indicators measure the long-term effects of policy, such as the standard deviation of inflation. This measures how much inflation moves above and below its average over a five-year period. Another example is trade tax revenue— the money the government collects from taxes on imports and exports. Other indicators capture policies the government can change directly, such as tax and tariff rates, even if doing so is politically difficult.

Policymakers should reform the areas the index captures because freer markets are associated with faster growth. Economic freedom lets farmers, firms, and workers make better decisions, respond to market signals, and allocate resources more effectively. It also allows more innovation and risk-taking.

In the past, policymakers used improvements in the Ease of Doing Business rankings to advertise the extent of reforms until the World Bank discontinued the rankings in 2021. Its successor, Business Ready (B-READY), already garners similar attention. India will be ranked for the first time in 2026, and policymakers will also try to move up those rankings.

However, India’s aim of becoming Viksit Bharat may be better served by pursuing reforms that improve its score in the Economic Freedom index.

In 2022, the Fraser Institute reviewed a slew of studies on the positive outcomes of economic freedom. Of the 92 studies examining the relationship between economic freedom and growth, 66 per cent reported a positive relationship, 33 per cent found no relationship, and only 1 per cent found a negative relationship.

To meet the Viksit Bharat target, India needs to sustain a growth rate that is hard to achieve in one year, let alone for 21 consecutive years. Strong evidence of the link between economic freedom and economic growth should encourage policymakers to prioritise reforms that improve economic freedom.

Where India falls behind on economic freedom

The advice to increase economic freedom is unhelpful without some specifics. The EFW report can help identify which areas need special attention. India performs especially poorly in two areas: freedom to trade internationally and regulation. In both these areas— scored based on performance in four indicators each— India ranks outside the top 100.

Let’s start with freedom to trade internationally, where India ranks 124th. The four indicators are tariffs, regulatory trade barriers, black market exchange rates (how close formal and informal currency rates are), and controls on the movement of people and capital. India scores a perfect 10 on black market exchange rates, meaning the informal and formal rates match, but it can improve on the other measures. India’s mean tariff rate and standard deviation of tariff rates are too high. In addition, India imposes many non-tariff trade barriers and restricts the movement of capital and people.

Policymakers can target reforms in these areas. Reducing capital controls and tariffs, and limiting non-tariff barriers like Quality Control Orders (QCOs), would improve India’s score and rank under Freedom to Trade Internationally and increase overall economic freedom.

The second area where India ranks poorly is regulation, where it ranks 117th. This too has four components: credit market regulation, labour market regulation, business regulation, and freedom to compete. India performs poorly on all four, but worst on business and labour regulation. These components include sub-components that offer more specific guidance. Under business regulation, India scores low on tax compliance and regulatory burden. These are areas ripe for reform. For labour, the biggest barriers are hours regulation and the cost of dismissing a worker.

The challenges the EFW report points to are not particularly surprising for any observer of India. Indeed, people have written and spoken about the importance of labour reform and easing regulation for years. The EFW report offers a systematic way to assess which parts of India’s institutional architecture most limit economic freedom, and what changes would improve it.

The case of China and South Korea

The goal of Viksit Bharat is ambitious. Only a handful of countries have sustained 10 per cent annual growth for 21 years. Most of those have been oil giants like Oman or the United Arab Emirates (UAE). But two countries offer India some hope: South Korea and China.

South Korea sustained 10.3 per cent annual growth in real terms between 1968 and 1988. Its GDP increased from around $51 billion to $350 billion, while per capita GDP rose from $1,657 to over $8,000. China sustained a 10.5 per cent annual growth rate in real terms between 1991 and 2011. Its GDP rose from around $1 trillion to $8.4 trillion, and per capita GDP rose from $986 to over $6,000. South Korea and China sustained these high growth rates in real terms. India only needs to match these growth rates in nominal terms to reach its Viksit Bharat target.

Both South Korea and China needed significant reforms to enable such sustained growth. Both countries also capitalised on a period when trade was opening up and demand for globalisation was high. The current geopolitical climate poses more risks, but this just means India needs to be more ambitious. The dream of Viksit Bharat is achievable, but it requires an ambitious reform programme.

Arjun Krishnan and Kumar Anand work at the Centre for Civil Society, a New Delhi-based public policy think tank. Views are personal.