Halt of ‘Doing Business’ Report

Why in news?

The World Bank halted its annual ‘Doing Business’ report, as it detected irregularities of data for a few countries.

Should India bother about it?

• Yes. India has sought to improve its doing business index ranking, as a means to attract investments to achieve the targets set for ‘Make in India’.
• This initiative, announced in 2014, aims at:
  1. Raising the manufacturing sector’s share in Gross Domestic Product (GDP) from 16-17% to 25% and
  2. Creating 100 million additional jobs in the manufacturing sector by 202
• India’s success in boosting its ease of doing business ranking from the 142nd rank (2014) to 63rd rank (2019) is spectacular.
• The WB decision to audit the last five years’ reports may soon cause discomfort by shining a spotlight on the sharp rise in India’s ranking.
• In 2018, a study by the Center for Global Development (CGD) found that the improvement in India’s ranking was almost entirely due to methodological changes.

What is the case of Chile?

• Chile’s global rank went down sharply, from 34 (in 2014) to 67 (in 2017).
• Chile’s former President (2014-18) accused the WB of manipulating the index methodology to show her presidency in poor light.
• The CGD study of March 2018, with a reworking of the ranks with an unchanging methodology showed very little change in Chile’s global rank.

How did the WB respond?

• In 2017, World Bank’s Chief Economist, Paul M. Romer admitted to the World Bank’s mistakes.
• The contrasting experience of Chile and India casts doubts on the country-level data and also the changes in underlying methodologies.
• Therefore, the WB decision to suspend the publication and conduct a systematic review of the reports of the last five years is welcome.

Does the index have predictive power?

• Recent evidence about India is telling.
• While its rank pole vaulted, it has meant nothing on the ground.
• The share of the manufacturing sector has stagnated at 16-17% of GDP, and 3.5 million jobs were lost between 2011-12 and 2017-18.
• Annual GDP growth rate in manufacturing fell from 13.1% in 2015-16 to zero in 2019-20, as per the National Accounts Statistics.
• India’s import dependence on China has shot up, compelling India to announce yet another initiative — Atmanirbhar Bharat.

What are the shortcomings of the index?

• 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, not from entrepreneurs.
• These data are obtained by lawyers, accountants and brokers.
• The WB conducts a global enterprise survey collecting information from companies.
• Interestingly, there is no correlation between the rankings obtained from ease of doing business and the enterprise surveys.
• The theoretical underpinning of the 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 that defies the index’s simplistic generalisations.
• But, such simplistic homilies are used under a seemingly scientific garb of the quantitative index to the disadvantage of workers.
• For instance, to meet the ease of doing business targets, safety standards of factories are compromised.

What could be done?

• The WB’s decision to halt its annual report on account of data authenticity issues of some countries has implications for India.
• Since 2015, the government has invested political and administrative capital to improve India’s global ranking, with impressive success.
• But the enhanced ranking has failed to augment investment and output growth.
• So, 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.

Source: The Hindu