A development that will hardly put India at ease

Context:

• The World Bank’s decision to halt its annual ‘Doing Business’ report on data authenticity issues has major implications.
• World Bank halted its annual publication, ‘Doing Business’ report, as it detected irregularities of data for a few countries.
• The integrity and impartiality of our data and analysis is paramount and so we are immediately taking the following actions.

Rankings and ‘Make in India’

• Should we bother about it? Yes, perhaps. India has sought to improve its ease of doing business index ranking, as a means to attract investments to achieve the targets set for ‘Make in India’, that was announced in 2014. The initiative aims at raising the manufacturing sector’s share in GDP to 25% (from 16-17% per cent) and creating 100 million additional jobs in the manufacturing sector by 2022.
• India’s success in boosting its ease of doing business ranking is spectacular, to 63rd rank in 2019, up from the 142nd position in 2014. Policymakers celebrated it to signal India’s commitment to “minimum government and maximum governance.
• The World Bank decision to audit the ‘Doing Business’ report for the last five years may soon cause discomfort by shining a spotlight on the sharp rise in India’s ranking. In fact, in January 2018, Justin Sandefur and Divyanshi Wadhwa’s study at the Center for Global Development found that the improvement in India’s ranking was almost entirely due to methodological changes.

The case of Chile and Russia

• During the same period, however, Chile’s global rank went down sharply, from 34th position in 2014 to 67th in 2017. Chile’s former Socialist President (2014-18), Michelle Bachelet, accused the World Bank of manipulating the ease of doing business index methodology to show her presidency in poor light, while showing improvement in the ranking during the regime of the right-wing party.
• The contrasting experience of Chile and India casts doubts on not just the country-level data but also the changes in underlying methodologies. Therefore, the multilateral agency’s decision to suspend the publication and conduct a systematic review of the reports of the last five years is undoubtedly welcome.

Many flaws

• There are many shortcomings in the design and implementation of the index. The Indicators used for the index are de jure (as per the statute), not de facto (in reality). The data for computing the index are obtained from larger enterprises in two cities, Mumbai and Delhi, by lawyers, accountants and brokers — not from entrepreneurs.
• The World Bank’s own internal watchdog, the Independent Evaluation Group, in its 2013 report, has widely questioned the reliability and objectivity of the index
• More seriously, the theoretical underpinning of the ease of doing business index is suspect. There is little in any major strand of economic thought, which suggests that minimally regulated markets for labour and capital produce superior outcomes in terms of output and employment. Economic history shows rich variations in performance across countries and policy regimes, defying simplistic generalisations that inform the construction of the ease of doing business index.

Time for a rethink

• To sum up, the World Bank’s decision to halt its annual ‘Doing Business’ report on account of data authenticity issues of some countries has implications for India. Since 2015, the government has invested considerable political and administrative capital to improve India’s global ranking, with impressive success. However, the enhanced ranking has failed to augment investment and output growth.
• Why? Analytical and empirical foundations of the index are weak, if non-existent. The index is based on de jure measures, and not on de facto conditions. There is no credible association between improvement in ranking and a rise in capital formation and output growth, anywhere. Worst of all, it is an ideologically loaded measure against the interest of workers. It is time the World Bank rethinks 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.

Reference: https://www.thehindu.com/opinion/lead/a-development-that-will-hardly-put-india-at-ease/article32481836.ece