Even with its Telangana trouble, Andhra Pradesh has been the most conducive state for economic freedom.

While Tamil Nadu topped the list and Gujarat came second in the rankings published in the 'Economic Freedom of States of India 2011', Andhra Pradesh improved its past ranking by four places, landing the third spot.

The state had been placed seventh in the previous list, drawn up for the year 2005 while the current rankings have been drawn up for the year 2009.

The study is based on size of the government, legal structure and regulation of labour and business in each state and surveyed 20 states of India. 

“The index score for Andhra Pradesh went up from 0.4 to 051 on a scale from zero (no freedom) to 1 (high freedom), an improvement of 27.25 per cent,” according to the report titled ‘Economic Freedom of the States of India 2011’ and released by Friedrich Nauman Foundation (FNF), South Asia.

The government of Andhra Pradesh from 2004 to 2009 implemented policies that accelerated economic growth, said the report. According to the report, “Andhra Pradesh reduced waste and corruption and implemented reforms such as contract teachers to supplement regular teachers, social audit of employment schemes, and private sector participation in infrastructure projects which had earlier been government monopolies.

“Three factors – fastest growth in agriculture (6.8 percent growth, more than double the national average), rural infrastructure, elimination of Maoism – boosted industrial growth, employment and attracted in-migration from other states,” Swaminathan Aiyar, journalist and fellow Cato Institute, one of the co-authors of the report. Economists Bibek Debroy and Laveesh Bhandari are the other authors of the report.

But Aiyar admitted that despite fastest increase in economic freedom, the state failed to control the swelling demand for statehood for  Telagana region. He also added AP failed to stop the Satyam fraud. 

The second fastest economic freedom state was Gujarat, which moved from up from the fifth to second position. Tamil Nadu repeated its 2005 performance, retaining the first rank.

“It is quality and priority of the government which determines the factor how it performs,” said Ashok Gulati, the newly appointed chairman of the Commission for Agriculture Costs and Prices (CACP). He said growth in agriculture sector made the difference in the performances of such states.

The report also came with caveat. “What is worrying is that between 2005 and 2009, not all states have exhibited an increase in economic freedom.”

The report indicated as many as 12 states have seen a fall in their economic freedom rankings. “The worse performers being: Madhya Pradesh, Uttarakhand, Punjab, Orissa, Himachal Pradesh and Maharashtra,” the report said. Punjab, once among the best performers, slipped from 6th position in 2005 to 12th position in 2009. Haryana, Tamil Nadu , West Bengal, Rajasthan and Jammu & Kashmir registered moderate increases in economic freedom. Kerala, Bihar, Jharkhand, Karnataka, Uttar Pradesh, Assam and Chhattisgarh showed moderate declines.

The report made light of Maharashtra's claims of being one of the best states to do business in, putting at the fifteenth spot.

“Even as some states improved in economic freedom, others worsened, showing that there is no uniform all India trend,” the study said

“States in India which are economically more free are also doing better in terms of a higher per capita growth for its citizens, unemployment levels are lower in these states, sanitary conditions are better and the states attract more investment,” said Siegfried Herzog, regional director, FNF, South Asia.

The bottom three states in 2009 were Bihar, Uttrakhand and Assam, in that order. Back in 2005, Bihar was still ranked at the bottom (20th) while Assam was at the 19th position and West Bengal at 18th.