Economic-Freedom, Gujarat and Bihar...

Economic-freedom means improved opportunities and quality of life. It means freedom to decide how and what to produce use and sell you resources while maintaining freedom of others. Economic-freedom is the engine of prosperity and is responsible for why some regions are prospering while others are stuck on the road of growth and development. It improves every dimension of people’s lives. Higher economic freedom means higher incomes which adds to demand and growth rate of the economy. In a more simplified way economic-freedom adds to the standard of living of people of a region. The Economic Freedom of the World (EFW) project started by Fraser Institute in 1980s works on the principle that there is a stable empirical relationship between prosperity and economic-freedom and increase in human welfare. The study made an attempt to measure economic-freedom within the economy of INDIA. This year’s study underscores the importance of state level improvements in policy and trialing to bring improved social and economic results in case of gaps in national economic policy. The report shows that the Indian states vary in the level of economic-freedom. Gujarat has topped the list of economic-freedom of states index, 2013, while Nitish Kumar’s Bihar was at the bottom of the list just like the past two years. Economic Freedom depends upon three factors; size of the government; taxes, expenditure and enterprises, because lower size of government means higher Economic-Freedom, regulation of business and labor, and, legal structure and security of property rights. There is a positive correlation between economic-growth and these three factors. According to the Economic Freedom of the State of India (EFSI), 2013 Gujarat has topped the index list of economic-freedom with a score of 0.65 on a scale of 1 and Bihar achieved a score of 0.31.

If there is government-intervention in the working of the economy or if government has a large role as a provider or producer of goods and services or governments role in distribution of resources it means there is less economic-freedom. The size of the government is measured by gross domestic product (GDP) or gross state domestic product (GSDP) or revenue and expenditure of large employment in the public sector. Income-tax, tax on goods and services, tax on capital transaction and property and other taxes are indicators of the role of government… As far as the role of government is in question Gujarat has been a success since 2000 apart from improvement in water-resource-management, social-welfare-schemes and agriculture, too. Bihar has been a laggard in this category where GDP or GSDP has not flared much as compared to the size of the government. In this area Bihar’ score at 0.52 is less than Gujarat’s score at 0.69.In the second category comes the efficiency of the government to protect property and human-life. Completion of cases, availability of judges and police-investigation form the quality of Justice. The rate of economic and violent crimes and recovery of stolen property shows the level of security and safety. Gujarat which is a well governed state has improved compared to 2005; however the improvement has not been stable. Bihar also has shown improvement nevertheless it continues to be the last in the list. In this category Gujarat’s score is 0.39 better than Bihar’s score 0.12. An entrepreneur works under condition of uncertainty and some times is pressed for unpopular decisions. Decisions like down-sizing the workers are important for using the resources productively. Inability to do so sometimes results in loss of profit and freedom. Stringent labor laws are a road block in production forcing entrepreneurs to keep their hands-off investment. For decades labor laws are responsible for unnecessary security for workers. Industrial conflicts and the magnitude of strikes show economic freedom of an entrepreneur, it means control over business. Infrastructure-bottlenecks is another area which restricts economic freedom of entrepreneurs. High business and transaction costs further constrain economic freedom of business. Licences are a well know impediment to businesses’ freedom. All these factors contribute clipping freedom of the businesses. In this category Gujarat continues to be the best which has recorded the most improvement in the score since 2011. It score at 0.87 is better than the rest. Bihar with a score of 0.30 stands at the fifteenth place. Clearly Gujarat has done extremely well in this category, far ahead of Bihar.. 

Since the people of INDIA are now ready to choose Narendra Modi as the Prime-Minister therefore it became important to look at the Gujarat as the possible model for the country. Nevertheless, the Gujarat-model has been a subject of debate, some pointing at Modi as the natural leader while others criticizing him for his mistakes like mismatch between high growth-rate and some of the social and economic-indices. According to Arvind Panagariya and Bibek Debroy Gujarat has done well as Modi says… As per Panagariya, critics overlook the outstanding growth performance by Gujarat by only considering lack of few social-sectors. But that view is very narrow and after taking into account a wide range of social-sectors that view hardly fits true. Panagariya says that the critics view is wrong on education, too. Although Bihar spends more than Gujarat on education the condition of education in Gujarat is better than Bihar. Gujarat’s literacy rate increased 10% during 2001-10, more than any other competitor state. Looking at the literacy-rate in Gujarat at independence, the region has made remarkable progress. Debroy says Gujarat model speaks aloud about freeing space for privatization and setting-up good environment by the state. Moreover, it emphasizes the need for decentralization of empowering people and planning, and well targeted government expenditure through welfare schemes. Critics say that Gujarat grew 10% during the period 2004-12 which is above the national average of 8% in the same period, but its growth-rate remained below Bihar’s growth-rate at 11.5%.As far as the comparison of the Gujarat-model with the Bihar model is concerned we find Bihar ahead only in terms of growth rate, only during last few-years, and that is only marginally 1-2%. If we take into account the population growth rates of the two regions we find that the difference between the population growth-rate is more than the difference between the economic-growth-rate. Bihar population growth is 25% per ten year and Gujarat’s rate is 19% which means Bihar has to grow more, more than Gujarat to match the demand and supply of workforce in the region which affects the level of income. Even if Bihar’s growth rate at 11% in the past few years has been higher than Gujarat 10%, but per-capita income is higher in Gujarat around 90,000 and in Bihar it is 23,000. Income is the best indicator of welfare...