World Bank's index of 'ease of doing business' is arbitrary

If we can dispossess our mind of the myth that whatever the World Bank says or recommends must be sacrosanct and gospel truth, then we can examine in depth what this index of doing business circulated by World Bank is all about.

The country-wise index for 190 countries has been created, details of which are indicated below. I am choosing some countries due to shortage of space. The figures relate to June 2016, and Mumbai has been taken as the example for India. The 10 criteria are (1) starting a business (2) dealing with construction permits (3) getting electricity (4) registering property (5)  getting credit (6) protecting minority shareholders (7) paying taxes (8) trading across borders (9) enforcing contracts and (10) resolving insolvency. 

On the basis of these, the index is the following for two items only as all cannot be reproduced here. Best mark is 1. The first figure relates to ease of doing business (which is the final result), and the second is for paying taxes. Now, index is the following: New Zealand (1, 11), Singapore (2, 8), Denmark (3, 7), Hong Kong (4, 3), Korean Republic (5, 23), Norway (6, 26), UK (7, 10), USA (8, 36), Germany (17, 48), Georgia (16, 22), Iceland (20, 29), Canada (22, 17), UAE (26, 1), Switzerland (31, 18), Japan (24, 70), Kazakhstan (35, 60), Armenia (38, 88), Russia (40, 45), Israel (52, 96), Mongolia (64, 35), Bhutan (73, 19), Kyrgyzstan (76, 148), China (78, 131), Seychelles (93, 32), Fiji (97, 110), Uganda (115, 75), Nepal (107, 142), Tajikistan (128, 140), India (130, 172), Pakistan (144, 156), Bangladesh (176, 151), Afghanistan (183, 163), South Sudan (186, 68), Sudan (168, 141).

India’s overall position is this: 130. For the individual criteria the scores are here. (1) 155, (2 ) 185, (3 ) 26, (4 ) 138, (5) 44, (6) 13, (7) 172, (8) 143, (9) 172, (10) 136. Defects in this index are very serious and many. First, let me take paying taxes, as it has got very bad marks, namely 172. Under this category, time for payment of taxes has been given. Most taxes have been shown as paid online such as corporate income tax, VAT, CENVAT, CST. Whereas no time taken has been shown for VAT, CENVAT and other taxes, for CST, time taken has been shown as 105 hours, for corporate tax 45 hours, and social security contributions 91 hours (though paid online). No reason has been shown why online payments take so much time only for these three taxes. The problem is that their figures are arbitrary and no explanation is there.

Second, all the 10 criteria are of all equal weights. Obviously, starting a business cannot have the same weight as enforcing contracts or resolving insolvency.

Third, the criteria 2, 3, 4 and 5 are part of the first criterion, namely starting business. Showing them separately has caused distortion of the merit of the analysis.

Fourth, for trading across borders, distance from border has been taken as a criterion. Naturally, a big country like India is ranked 143 compared to small countries like Marshall islands (64) and Cambodia (102). So, this is a very defective approach.

Fifth, “ease of doing business” should have taken into account the availability of natural resources and technically qualified personnel, such as engineers and financial experts. Not taking them into account makes the 10 criteria a laughable cohort.

Last, the most crucial thing is the market, which they have ignored. The big market of India, with 1.3 billion consumers, is the reason why investment will come to India, as Martin Feldstein, the famous economist, has pointed out in the ET Business Summit recently.

Conclusion: Imagine this World Bank index has placed Sudan and Afghanistan above India for ease of payment of taxes. It has placed Azerbaijan, Bhutan, Nepal, Uganda, Tajikistan, Rwanda, Kazakhstan, Kyrgyzstan above India for ease of doing business, though these countries have no source of raw materials and no availability of technical manpower (which India has in abundance). The absurdity of the index is too glaring. World Bank should concentrate in its core business of lending money to countries and supervising the execution of the project rather than producing such absurd index.

The writer is retired member of the Central Board of Excise & Customs.

E-mail: smukher2000@yahoo.com