A Development That Will Hardly Put India at Ease

Context:  World Bank halted its annual publication, ‘Doing Business’ report, as it detected irregularities of data for a few countries. World Bank also decided to audit the ‘Doing Business’ report for the last five years

Significance of the Rankings on Indian Policies

• Means to attract investment for ‘Make In India’:

• Aimed at raising the manufacturing sector’s share in GDP to 25% (from 16-17%) and creating 100 million additional jobs in the manufacturing sector by 2022. 

• Commitment to “Minimum Government & Maximum Governance”: celebrated through improved ranking to 63rd rank in 2019, up from the 142nd position in 2014.

General Challenges to the Index Framework

• Doubt over credibility: Improvement in India’s ranking was almost entirely due to methodological changes impacting the credibility of the rankings.

• Biased Approach: Chile’s former President (2014­18), Michelle Bachelet, accused the World Bank of manipulating the ease of doing business index methodology to show her presidency in poor light.

• While India’s ranking improves between 2014-2019, Chile’s global rank went down sharply from 34th in 2014 to 67th in 2017.
• Based on new methodologies, it was found that the condition was not too bad for Chile during the concerned period.

• No evidence on the ground:

• The share of the manufacturing sector has stagnated at around 16­17% of GDP, and 3.5 million jobs were lost between 2011­12 and 2017­18. 
• The annual GDP growth rate in manufacturing fell from 13.1% in 2015­16 to zero in 2019­20, as per the National Accounts Statistics.
•  India’s import dependence on China has shot up, compelling the Prime Minister to announce  — Atmanirbhar Bharat.
• Russia’s ease of doing business rank jumped from 120 in 2012 to 20 in 2018, taking Russia ahead of China, Brazil, and India, but without attracting investments.

• Safety Standards are often compromised to meet the ease of doing business standards: 

• For E.g. In 2016, the Maharashtra government abolished the annual mandatory inspection of steam boilers.
• Instead of this, “third party” inspection and employers’ self-certification are mandated which the factories failed to comply with.

Issues with the Design and Implementation of the Index

• Flaws in the methodologies

• The Indicators used for the index are de jure (as per the statute), not de facto (in reality).

• Non-inclusive: Data obtained from larger enterprises in two cities, Mumbai and Delhi, by lawyers, accountants and brokers 
• Reliability and Objectivity under scanner: The Independent Evaluation Group, in its 2013 report, has questioned the reliability and Objectivity of the index.

• No Correlation with the Enterprise Survey: There is no correlation between the rankings obtained from the ease of doing business and the enterprise surveys.
• Flawed Theoretical Underpinnings: The index is overly based in simplification, suggesting minimally regulated markets for labour and capital to have superior outcomes in output and employment. 

• On the contrary, economic history shows rich variations in performance across countries and policy regimes, defying simplistic generalizations that lead to ease of doing business.

Way Forward: Time for a rethink

• World Bank: Should rethink its institutional investment in producing the ‘Doing Business’ report.

• India: should do some soul searching as to why the much-trumpeted rise in global ranking has failed miserably on the ground.

Conclusion: As there is no credible association between improvement in ranking and a rise in capital formation and output growth, anywhere, the decision of World Bank to audit the ‘Doing Business’ report of last five years is a step in the right direction.