The much-noted flagship publication of the World Bank Doing Business (DB) was publicly unveiled recently. This became cause for celebration for Indian Prime Minister Modi. Why? Well, after languishing for some time, India jumped 30 places to reach a rank of 100 (the lower the rank the better in terms of the ease of doing business). It was given the accolade of the 10 ‘top improvers’ for implementing more than 50 regulatory reforms over the past year which ‘make it easier to do business’. The Indian Prime Minister tweeted that it was a ‘historic jump’. This is quite different from last year when the Indian government was disappointed that the World Bank did not adequately capture the reform measures that were underway. Prime Minister Modi’s ambition is to catapult India to the top 50 nations in the DB ranking scheme.
As is well known, the DB Report 2018 is the 15th in a series of annual reports that seek to measure regulations that enhance ‘business activity and those that constrain it’. The theme of this year’s report is ‘Reforming to create jobs’. Its authors claim that there is a significant association between improvements in DB rankings and growth, employment and poverty reduction. I am not going to quibble over this empirical proposition, but I am sympathetic to the views of those scholars who maintain that by focusing on formal rules and regulations that characterize the de jure investment climate, the DB reports fail to reflect the actual experience of firms, especially in developing countries. The de facto determinants of the investment climate are, in fact, captured quite well by another World Bank undertaking – the enterprise surveys – that seems to lack the celebrity status attached to the DB reports.
I worry about readers in India who are keen to act as cheerleaders of the good news emanating from the DB reports. As a thoughtful analyst has pointed out, one should take time to understand what exactly is being measured. He points out that ‘in India’s case, the business environment in only Delhi and Mumbai are used to compile the national ranking’.
Even if one uncritically accepts the findings of this year’s DB report, one should exercise caution in accepting the quantitative significance of the impact of pro-business reforms on basic social indicators, such as poverty. For example, poverty in India today is 22.0 per cent based on a national poverty line. If India is able to improve its DB rank by 10 percentage points within the tenure of the current Indian government, poverty would decline by only two percentage points. In other words, poverty, following a major overhaul of business regulations, would stand at 20.0 per cent! At least, that seems to be the underwhelming implication of the global estimates provided in this year’s DB report.
The DB report is itself rather frank about the narrow nature of its remit. As it says, ‘the focus is deliberately narrow…’ It concedes, for example, that it does not ‘…address the extent to which inadequate roads, rail, ports, and communications may add to a firm’s costs and undermine competitiveness’. It notes that it leaves out factors such as macroeconomic conditions, the quality of the financial system, quality of the work force, the incidence of bribery and corruption, market size and lack of security in analysing the investment climate. Thus, it is possible for a country to be a good performer in the DB ranking game despite lacklustre macroeconomic conditions, sub-standard infrastructure, a poorly educated workforce, significant incidence of bribery and corruption and low standards of law and order. Is this how India wishes to seek global recognition as it aspires to become the top 50 most competitive economy in the world?
This article was written by Griffith Asia Institute Adjunct Professor Iyanatul (Yan) Islam.
