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