21 Sep The End of World Bank’s “Ease of Doing Business Ranking” (GS 3, Economics, The Hindu, Indian Express)
Context: The World bank, last year, halted its annual publication of “Doing Business Report” as it had detected irregularities of data for a few countries. In its press release it had said that the integrity and impartiality of their data and analysis was paramount and on this basis a systematic review and assessment of data changes was conducted. World Bank Group’s independent Internal Audit Function performed the audit of the process for data collection and reviewed for Doing Business. After the review, data irregularities were found in the report of 2018 and 2020. It has raised ethical concerns and a decision of ending the publication of the report has been taken.
Let’s look into this: The World bank has decided to discontinue the publication of “Doing Business Report”. In this report it publishes the rankings of countries on the basis of their business climate. Business climate largely depends on political stability, government policies, certainty in public policies, taxation policies, democratic values, freedom in the movement of labour and capital, healthy competition, free market system, forein trade policies, property rights etc. The Ease of Doing Business index ranks countries by the simplicity of rules framed for setting up and conducting businesses. This index is based on Peruvian economist Hernando De Soto’s theory. The theory claims that secure property rights with minimal government interventions are a precondition for a free market to flourish. Many countries were having opportunities to signal market friendly policies to attract foreign Investments by showcasing their improved rankings. Even the national leaders often set “Ease of Doing Business” (EDB) ranking targets. They compare their domestic policies against best global practices and even browbeat the domestic critics. The Prime Minister too, for instance, wanted India to be among the top 50 ranking countries.
On September 16, the World Bank Group took the decision to discontinue its flagship publication, the ‘Doing Business’ report. This report used to publish the influential annual ranking of countries on the Ease of Doing Business (EDB) index. The World Bank Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index. The proximate reason for scrapping the publication is allegations surrounding Kristalina Georgieva, Managing Director of the International Monetary Fund. As Chief Executive Officer of the World Bank in 2018, Ms. Georgieva is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s ranking by doctoring the underlying data. Similarly in the case of Saudi Arabia’s rank along with some others, were also reportedly forged.
The index’s top rankers are majorly Advanced Countries.India zoomed to the 63rd position in 2019-20 from around low ranking of 130-140 before 2014.
India has claimed success of the ‘Make in India’ campaign showcasing the accomplishment. The flagship program Make in India launched in 2014, sought to raise the manufacturing sector’s share in GDP to 25% (from 16 -17%) and create 100 million additional jobs by 2022 (later revised to 2025). However, success is absent on the ground. The annual growth rate in GDP manufacturing (at constant prices) fell from 13.1% in 2015-16 to 2.4% in 2019-20. Net FDI inflow to GDP ratio has fluctuated around 1.5%. The fixed investment to GDP ratio (at current prices) fell from 30.1% in 2014-15 to 26.9% in 2019-20.
It is to look into why there is such a disconnect between the stellar rise in EDB index rank and economic outcomes on ground. The underlying theory of the EDB index could be suspect, the data and measurement could be faulty, or both.
In case of China also, the lack of clarity of property rights may not be the binding constraint in a market economy as per index. Measuring the regulatory functions underlying the index would be tricky and subjective and possibly politically motivated.
Similarly, in the case of Chile also, the EDB index sharply rose when the conservative government was in power and went down when the socialists were ruling despite no changes in policies and procedures. This was reportedly the result of the finetuning of the methodology and had
deep political implications. Former World Bank Chief Economist, and later Nobel Laureate, Paul Romer, publicly apologised to Chile’s socialist President for unprofessional World Bank’s conduct in preparing the index.
Indian Context: In India also we have witnessed the dilution of labour laws so as to suit the EDB index. Labour laws were reframed and brought closer to the free market ideal of hire and fire. And hence moved in the court of employers or say capitalism. Maharashtra and some other states dismantled the official labour inspection system and allowed employers to file self-regulation reports which rendered Labour laws toothless. The government has reframed critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies .The Labour Department’s inspection has now become optional. Further, severe industrial accidents are rising which may be associated with the lack of independent inspections and employers’ self-reporting of labour law compliance.
Way Forward: The World Bank’s decision to scrap its annual publication Doing Business report should be welcome as it has come on the pretext of integrity and impartiality. The development lender (World Bank) should work on a new approach to assess countries’ business and investment climates which should be neutral and for larger interest.
Md Layeeque Azam, Economics Faculty
Plutus IAS Current Affair Team Member