The end of the doing business rankings

Context:

The World Bank Group has decided to discontinue publication of its ‘Doing Business’ rankings of country business climates under its ‘Doing Business’ report after findings of data irregularities and ethical concerns in the 2018 and 2020 reports.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Inclusive Growth, International Institutions and their reports)

Dimensions of the Article:

1. About the Ease of Doing Business Report (EoDBR)
2. Significance and Benefits of Ease of Doing Business Rankings
3. Concerns regarding the Ease of Doing Business Rankings
4. More about the decision regarding dropping of the rankings

About the Ease of Doing Business Report (EoDBR)

• Ease of Doing Business Report (EoDBR) is published by the World Bank.  In the EODB index, ‘higher rankings’ (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
• The report was introduced in 2003 to provide an assessment of objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle.
• The World Bank Publishes this report Every year. The index has been created to evaluate the impact of the economic policies/reforms implemented by the government in the respective countries to promote and make it easier to do business.
• Empirical research from government officials, lawyers, business consultants, accountants, other professionals is done in order to collect the data for the performance of these countries.

This report is published after evaluating the performance of countries under the 10 parameters:

1. Starting a business – Procedures, time, cost, and minimum capital to open a new business
2. Dealing with construction permits – Procedures, time, and cost to build a warehouse
3. Getting electricity – procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
4. Registering property – Procedures, time, and cost to register commercial real estate
5. Getting credit – Strength of legal rights index, depth of credit information index
6. Protecting investors – Indices on the extent of disclosure, the extent of director liability, and ease of shareholder suits
7. Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit
8. Trading across borders – Number of documents, cost, and time necessary to export and import
9. Enforcing contracts – Procedures, time, and cost to enforce a debt contract
10. Resolving insolvency – The time, cost, and recovery rate (%) under a bankruptcy proceeding

Significance and Benefits of Ease of Doing Business Rankings

• Based on the rank a country secures under EoDBR by World Bank- the image of the country in the global market improves.
• The rankings are expected to act as a guide to investors to take/make decisions. Hence better the ranking in the report more the favourability
• The rankings helped the countries measure domestic policies against global “best practices”. Many countries showcased improved ranking to signal market-friendly policies to attract foreign investments.

About India’s Performance

• India was ranked around 130-140 in the EDB index, till 2014. However, India has registered remarkable growth to reach the 63rd position in the 2019-20 EDB index.
• The ‘Make in India’ campaign, launched in 2014, seeks to raise the manufacturing sector’s share in GDP to 25% and create 100 million additional jobs by 2022 (later revised to 2025).

Concerns regarding the Ease of Doing Business Rankings

1. Environmental concerns: The desire for better ranking in the index has encouraged countries to even slash down vital regulations which could have a detrimental impact in the long run. There are concerns that the index sidesteps the societal costs of deregulating pollution, worker safety, and health risks. Countries like Brazil, India, and the U.S. have slashed environmental standards which are making significant contributions to climate change and threatening the ecological stability.
2. Worker safety: Slack business safeguards may prove to be detrimental to worker safety. The 2013 collapse of the Rana Plaza garment factory in Bangladesh, the second deadliest industrial accident resulted from lackadaisical factory regulation.
3. Labour rights: The states have been relaxing the labour laws to help attract higher private investment in their economies. However, the states seem to be neglecting workers’ well-being while considering changes to labour laws.
4. Neglect of vital indicators: The survey neglects indicators like capital availability, availability of skilled workforce, infrastructure availability and entrepreneurship support systems which are as important as the other parameters in the doing business index.

More about the decision regarding dropping of the rankings

• The index is vulnerable to doctoring as was reported by the study commissioned by the World Bank. Some countries seem to use their political heft to improve their rank. Instances of data manipulation brought to light by the independent investigating agency seems to vindicate such a view.
• The EDB index lays emphasis on aspects such as minimal state interventions being a precondition for a free market to flourish. This might not be true in all scenarios. The index appears motivated to support the free-market ideal which might not be suitable for all nations.
• The index is calculated from data from select cities and larger firms. This does not give a complete picture of the economy. Notably, there seems to be a wide disconnect between the stellar rise in EDB index rank and economic outcomes in some countries like India. This calls into question the efficacy of the index and gives rise to doubts on the theory underlying the EDB index and the errors in measurement and data.
• The index has been weaponized to weaken labour regulations and their enforcement. The dismantling of official labour inspection systems and handing over law enforcement to employers by self-reporting compliance seems to have increased industrial unrest and accidents.

Click Here to read more about the World Bank Group

-Source: The Hindu