What is the issue?
- The World Bank will shortly release the 2018 edition of its annual Ease of Doing Business rankings.
- There have been regular complaints filed by countries unhappy with their place on the rankings in the earlier reports.
- Given this scenario, it is important for India to remain cautious of the assessments outcomes.
What are the drawbacks of the report?
- The WB's Doing Business rankings do not measure all aspects of the business environment and seem to be narrow in many respects.
- Criteria - They primarily focus on the hurdles across certain areas of business regulation such as red tape and other administrative impediments.
- This is not truly representative of the issues and difficulties that firms and investors experience in the real business environment.
- The wide prevalence of informal economy and poor enforcement of regulations are some of the causes for this narrow assessment.
- Coverage - The World Bank has traditionally assessed just the largest business city in each country.
- It incorporates the second major city as well for the 11 most populous economies as of the 2015 report.
- The recognition and reflection of the reforms only in a few cities is not representative of the improvements in the investment climate of a country as a whole.
- This drawback particularly has a multiplier effect for large countries such as India; the assessed cities in India are Mumbai and Delhi.
- However, this is proposed to be addressed in future; e.g. India would see the inclusion of eight additional cities.
- Firm-level surveys - These are undertaken since the 1990s as an alternative to address the assessment inadequacy in the standard methodology.
- Considerably, there are huge gaps in the assessment methodologies of the two.
- There are differences in the data concluded through Doing Business indicators and the enterprise surveys.
What caution should India take?
- India's poor 130th rank in the last year's report has captured widespread attention.
- It suggests a relatively poor business environment than the BRICS (Brazil, Russia, India, China and South Africa) economies.
- It is anticipated that India’s rating will improve in this year's report as an effect of various recent reforms.
- Whatever the outcome this year be, given the limitations in the assessments, the rankings cannot be taken as a comprehensive picture of the investment climate.
- Thus, there is need for a cautious response to the report and the rankings by policy makers and investors.
Quick Facts
Ease of Doing Business Report
- The ease of doing business index is an index created by the World Bank Group.
- It attempts to quantitatively capture the regulation that small- and medium-sized firms encounter in around 190 countries.
- Established in 2002, this index has become the single most influential measure of a country’s investment climate.
Firm-level enterprise surveys
- Undertaken since the 1990s, an enterprise survey is a firm-level survey of a representative sample of an economy's private sector.
- Firm-level surveys are conducted by private contractors on behalf of the World Bank.
- The surveys cover a broad range of business environment topics such as access to finance, corruption, infrastructure, crime, competition, and performance measures.
Source: Livemint