Criticism of WB’s Ease of Doing Business Report

ECONOMY/ GOVERNANCE/ INTERNATIONAL

Topic: General Studies 2,3:

• Important International institutions, agencies 
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Criticism of WB’s Ease of Doing Business Report

Context: World Bank’s decision to halt its annual ‘Doing Business’ report on account of data authenticity issues of some countries. It has also decided to audit the ‘Doing Business’ report for the last five years 

India and Ease of Doing Business

• 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’
• 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. 

Criticism of World Banks Ease of Doing Business report

1. The report is Politicised 

• • 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 index methodology to show her presidency in poor light, while showing improvement in the ranking during the regime of the right-wing party.

2. Admission by WB Chief Economist (Paul M. Romer) to the mistakes

• • In 2017, he said, “Based on the things we were measuring before, business conditions did not get worse in Chile under the Bachelet administration”
  • He further added, “I didn’t do enough due diligence and later realised that I didn’t have confidence in the integrity of the report’s data.”
  • 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. 

3. Robustness of methodology & calculation of Index is doubted

• • 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.
  • Example: The data for computing the index for India is obtained from larger enterprises in two cities only, Mumbai and Delhi, by lawyers, accountants and brokers — not from entrepreneurs.

4. Utility of the Index is questionable

• • There is no credible association between improvement in ranking and a rise in capital formation & output growth.
  • Russia’s ease of doing business rank jumped from 120 in 2012 to 20 in 2018 ahead of China, Brazil, and India, but without becoming a magnet for investment inflows. 
  • China, on the contrary, attracted one of the highest capital inflows but its ease of doing business ranking was low and hovered between 78 and 96 for the years between 2006 and 2017.

5. Index is an ideologically loaded measure against the interest of workers

• • To meet the ease of doing business targets, labour rights and safety standards of factories are often compromised. 
  • In 2016, the Maharashtra government abolished the annual mandatory inspection of steam boilers under the Boilers Act of 1923 and the Indian Boilers Regulation 1950.
  • There is little economic evidence to suggest that minimally regulated markets for labour and capital produce superior outcomes in terms of output and employment

Implications for India

• Since 2015, the government has invested considerable political and administrative capital to improve India’s ranking.
• While its Ease of Doing Business rank improved, it has meant nothing on the ground. 
• The share of the manufacturing sector has stagnated at around 16-17% of GDP, and 3.5 million jobs were lost between 2011-12 and 2017-18. 
• India should do some soul searching as to why the much trumpeted rise in global ranking has failed miserably on the ground.

Connecting the dots:

• World Competitive Index