Doing Business

There is space for a more robust, inclusive index

The World Bank has probably made a sensible decision to discontinue its 17-year-old annual Ease of Doing Business (EODB) report, though it took revelations of “irregularities” in the 2018 and 2020 editions before it did so. It had not gone unnoticed in commentary as 2018 was the year India moved into the top 100 rankings for the first time and went up 14 places in 2020 to rank 63. A jubilant Modi government was aiming for a top 50 position in the next round of rankings. Though it is unclear how far the anomalies detected will alter India’s ranking — apparently China, Azerbaijan, the UAE, and Saudi Arabia had their data altered — the fact is that the EODB has attracted doubts and questions in the past for several reasons. In 2018, for instance, then chief economist Paul Romer, who later won the Nobel prize in economics, accused the World Bank of political bias in its ranking of Chile, then under a socialist president.
 

There have been doubts, too, on the efficacy of a methodology that depended on specified business practices — such as the time to get a construction permit—in one or two cities in a country. In the US, for example, the data was drawn from New York City, although business conditions vary widely from coast to coast and from north to south. Likewise, in India, the index depended on the data from Mumbai and Delhi. Aware of the limitations of this method, the World Bank introduced sub-national rankings for select countries, among them China, Spain, Russia, Mexico, Malaysia, and India, where the ranks of 17 cities were compared (and Ludhiana emerged as number one). But this practice was discontinued after 2009. Perhaps the biggest weakness of the survey is that it is unlikely to have influenced investors’ decisions. China is a good example. It continues to attract more foreign direct investment than, say, New Zealand, which ranks number one, or Denmark, at number four. India, too, has seen no appreciable surge in FDI despite the eye-catching changes in ranking in recent years. Beyond national bragging rights, therefore, the value of the EODB appeared to be limited in practical terms. The fact is that such global indices are always subject to some sort of bias apart from being dependent on the veracity of the information provided.

That said, there is a case for a more universal and robust international index that offers global investors meaningful information beyond the metrics of the EODB survey. Quality of life, for instance, plays a major role in investment decisions, as do such aspects as safety, pollution levels, health care infrastructure, entertainment facilities, and so on. Some of these variables are only partially captured in other global indices such as the Human Development Index or Transparency International’s Corruption Index, so there is space for an inclusive survey that addresses a broader range of investor concerns. The same approach should inform the NITI Aayog’s state-level rankings. This laudable exercise has turned out to be way out of sync with reality. UP, for instance, ranked second in 2019 but received less than 6 per cent of all investment. It has also been discovered that several states that claimed to have “single window clearances” did not actually have such a facility. Yet a robust, authentic ranking free of political influence could be immeasurably useful to investors. The NITI Aayog should not allow this exercise to go the way of the World Bank’s EODB.