Editorial Notes

[Editorial Notes] World Bank halts its Doing Business report

The World Bank’s decision to halt its annual Doing Business report due to data authenticity issues has major implications on countries.
By IASToppers
August 31, 2020

Contents

  • Introduction
  • Ease of Doing Bussiness Index
  • Rankings and India
  • The case of countries around globe
  • Flaws in the Index
  • Conclusion

World Bank halts its Doing Business report

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Introduction

The World Bank has halted its annual publication, the Doing Business’ report as it detected irregularities of data for a few countries. The bank is conducting a systematic review and assessment of data changes that occurred after the institutional data review process for the last five Doing Business reports.

Ease of Doing Business Index:

  • It is an index published by the World Bank which is a benchmark study of the regulations across different Countries of the World.
  • The index is a means of measuring business regulations and its implementation across 190 economies and selected cities at the subnational and regional level.

Rankings and Make in India:

  • India has worked to improve its ease of doing business index ranking, as a means to attract investments to achieve targets set for Make in India (announced in 2014).
  • Make in India aims at raising the manufacturing sector’s share in GDP to 25% (from 16-17% per cent) and creating 100 million additional jobs in the manufacturing sector by 2022.
  • India’s ranked 63rd in the 2019 index, up from the 142nd position in 2014.
  • It was seen as India’s commitment to minimum government and maximum governance.
  • However, the World Bank decision to audit the Doing Business report for the last five years may implications on India.
  • It has been alleged that the improvement in India’s ranking was almost entirely due to methodological changes in the ranking process.

Ground reality of the Index:

  • Going beyond the data and methodology, the ease of doing business index meant nothing on the ground for India.
  • While India’s ranking jumped, the share of the manufacturing sector has stagnated around 16-17% of GDP, and 3.5 million jobs were lost between 2011-12 and 2017-18.
  • The annual GDP growth rate in manufacturing fell from 13.1% in 2015-16 to zero in 2019-20, as per the National Accounts Statistics.

The case of countries around globe:

  • Chile’s global rank went down sharply, from 34th position in 2014 to 67th in 2017.
  • The World Bank was accused of manipulating the ease of doing business index methodology, which has pointed questions to the integrity of the Index.
  • Russia’s rank jumped from 120 in 2012 to 20, in six years taking Russia ahead of China, Brazil, and India.
  • China attracted one of the highest capital inflows but its rank was low, between 78 and 96 for years between 2006 to 2017.
  • Azerbaijan’s ranking changed from 80th to 34th, UAE from 22nd to 16th and Saudi Arabia has slipped from 49th position to 62nd in the last five years.
  • The decision to suspend the publication and conduct a systematic review of the reports of the last five years is undoubtedly welcome.

Flaws in 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) and not de facto (in reality).
  • There is no credible association between improvement in ranking and a rise in capital formation and output growth.
  • The data for computing the index in India are obtained from larger enterprises in two cities, Mumbai and Delhi, by lawyers, accountants and brokers — not from entrepreneurs.
  • The World Bank conducts a global enterprise survey collecting information from companies.
  • However, there is no correlation between the rankings obtained and the enterprise surveys.
  • Further, such surveys, as to meet the ease of doing business targets were to the disadvantage of workers.

Conclusion:

  • Economic history shows rich variations in performance across countries and policy regimes, which are against the simplistic generalisations in the index.
  • There is no solid proof that minimally regulated markets for labour and capital produce superior outcomes in terms of output and employment.
  • The Analytical and empirical foundations of the index are weak and it is time the World Bank should rethink the methodology adopted in thereport
  • India must also do the ground reality check as to why the much-hyped rise in global ranking has failed miserably on the ground.
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