World Bank Group Scrapped Ease of Doing Business Index Report

In News

• Recently, the World Bank Group scrapped its flagship publication, the ‘Doing Business’ report.
  • This report published the influential annual ranking of countries on the Ease of Doing Business (EDB) index. 

Why was the Publication Scrapped?

• The Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
• The allegation surrounding Kristalina Georgieva, MD of the IMF and former CEO of World Bank, is the proximate reason for scrapping the publication.
  • She is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s rank by doctoring the underlying data.
  • Similarly, tensions were also reportedly brought to bear in the case of Saudi Arabia’s rank, among others.

Importance of The Ease of Doing Business Report

• Indicator of Business Friendly Policies:
  • Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments. 
  • This helps nations to measure domestic policies against global “best practices” and browbeat domestic critics.
  • Prime Minister Narendra Modi, for instance, wanted his administration to ensure that India breaks into the top 50 ranks of the EDB index. 
• Ranks countries by the simplicity of rules framed for setting up and conducting businesses:
  • Peruvian economist Hernando De Soto’s theory underpins the index. 
  • The theory claims that secure property rights with minimal state interventions are a precondition for a free market to flourish. 
• Taken as a tool for success of Economic Policies:
  • India ranked low, around 130-­140, till 2014.
  • However, it zoomed to the 63rd position in 2019-­20 (see figure attached below). 
  • Showcasing the accomplishment, India has claimed success of the ‘Make in India’ campaign. 

Source: TH

Criticism

• A mere tool to polish International Image
  • Some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion (as appears to be China’s case).
•  Its focuses on Statutes rather than Real Practices:
  • Management consultants and corporate lawyers collect the information for the index as per the statute (de jure) and not as practised (de facto).
  • As per the data shown in the figure above, Make in India was not that successful.
    • Annual growth rate in GDP manufacturing (at constant prices) fell from 13.1% in 2015-­16 to 2.4% in 2019­-20.
    • The Net FDI inflow to GDP ratio has fluctuated around 1.5%.
    • The fixed investment to GDP ratio (at current prices) fell from 30.1% in 2014­-15 to 26.9% in 2019-­20. 
• Limited sample Size and Data
  • The data collected is from select cities and larger firms, which is a great limitation.
• No Proper correlation between Property Rights and Market Economy.
  • There are different counterexamples of basic assumptions of Soto’s theory that Property rights are constraints to the Market economy.
    • Eg. China’s phenomenal economic success, especially its agricultural performance (after the reforms in 1978).
• EDB index also seems vulnerable to a tweaking of the underlying method.
  • India’s improved ranking was reportedly an outcome of such an effort. 
    • When the index was re-estimated with unchanging procedures, the needle hardly moved. 
  • Similarly, Chile’s rank on the EDB index sharply rose when the conservative government was in power.
    • And it went down when the socialists were ruling despite no changes in policies and procedures.
    • Later, Former World Bank Chief Economist, and later Nobel Laureate, Paul Romer, publicly apologised to Chile’s socialist President for this.
• Weakening labour regulations 
  • India tried to adopt the free market ideal of ‘hire and fire’.
    • Most States have emulated Maharashtra’s lead of 
      • toothless labour laws, 
      • dismantled official labour inspection systems 
      • allowing employers to file self-regulation reports.
  • More breach than the compliance of Safety norms was reported after Third-party Private body certification in Safety was allowed
  • Prior Information Inspection by the Labour Department rendered it of almost no use.

Way Ahead

• What matters is economic incentives.
  • The economic principles are not universal and have different applications under different circumstances.
  • Eg. Chinese Reforms in 1978.
  • So, the Ease of Doing Business report needs to check its underlying principles.
• Remove the bias for Free Market Ideal
  • Being Balanced between welfare and laissez-faire can be the key to success.

Source: TH