Pakistan is getting ahead of India again

After getting ahead of India in equity market performance, Pakistan is getting ahead of India in another indicator: economic freedom ranking.

That’s according to the recent 2017 Index of Economic Freedom ranking, which places Pakistan in 141st position and India at 143th. Published by the Heritage Foundation, the Economic Freedom report measures such things as trade freedom, business freedom, investment freedom, and the degree of property rights protection in 186 countries.

Pakistan’s lead over India in this ranking may not be big deal to most observers, as it is too narrow to be meaningful. Besides, both countries are ranking too close to the bottom. Still, Pakistan’s ranking has been consistently outperforming India's in recent years. Does it really matter to anyone?

Yes, to equity market investors. Gains in economic freedom ranking are usually associated with higher economic growth rates and higher equity markets. And the superior performance of Pakistan’s market over that of India’s might as well be a reflection of it.

In fact, a closer look at the ranking components of the two countries reveals that Pakistan has fared better than India in the areas of business development and government spending, which matter a great deal for financial market performance.

Here is a quote from the Pakistan report. “Pakistan has pursued reforms to improve its entrepreneurial environment and facilitate private-sector development. The financial sector has undergone modernisation and restructuring.”

And a quote from the Indian report. “The state maintains an extensive presence in many areas through public sector enterprises. A restrictive and burdensome regulatory environment discourages the entrepreneurship that could provide broader private-sector growth.”

Simply put, while Pakistan is trying to place economic growth in the hands of entrepreneurs, India insists to place economic growth in the hands of government bureaucrats. That’s certainly good news for the future of Pakistan’s economy and equity markets.