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Monkey business in ‘Ease of Doing Business’ index

VENKY VEMBU | Updated on January 24, 2018
Is this the index in which India recently vaulted up?

Yes. India came in at 100th place (out of 190) in the World Bank’s Ease of Doing Business Report 2018. The fact that it was among the fastest movers up the ranks, from 140 a year earlier, gave rise to much official celebration.

What is the ranking about?

The annual report, now in its 15th year, ranks countries on quantitative and qualitative parameters that relate to ease of doing business – such as time to obtain a construction permit; the time, cost and procedures in getting a power connection; ease of getting tax refund and so on. In broad terms, it is considered a measure of how bad red tape is in a country, and how easy (or difficult) it is to do business.

Is the ranking taken seriously or is it a vanity project?

The listing has acquired influence over the years, and countries compete to move higher up the rankings. But it is not without its controversial elements. More on that in a bit.

So what’s the monkey business you speak of?

Last fortnight, World Bank chief economist Paul Romer dropped a bombshell with media comments that called the methodology behind the ranking into question, and imputed political motives to it. The controversy was centred around Chile, whose rankings fell from 34 in 2014 to 57 in 2018, but Romer suggested that the plunge was accentuated by changes in the methodology, the integrity of which he said he could not defend.

And political motives drove the changes?

Romer said he suspected political manipulation. Chile’s overall ranking has see-sawed between 25 and 57 since 2006, going down in periods when Socialist Party leader Michelle Bachelet was President, and rising when Conservative leader Sebastian Pinera was at the helm. Subsequently, however, Romer recanted his comments, and said he did not intend to attribute political motives or to suggest there was manipulation.

I get the picture. But this is only about Chile, right?

Romer said the World Bank would recalculate the rankings for four years to “see what the rankings would have been without the methodology changes”. If that happens, it could influence the rankings of other countries too, including India. Other World Bank officials have, however, defended the peer-reviewed changes to the methodology as fundamentally robust. In an official statement, the Bank said it would review only Chile’s ranking to clear the air.

Any idea what India’s rankings might then be?

We’ll have to wait a while to be sure, but independent analyses by the Centre for Global Development, which recalibrated the rankings using a fixed methdology, give India a lowly 147 in the rankings for 2018.

Save those champagne bottles for later?

That might be prudent.

You insinuated there are other controversies...

More generally, the ranking is open to criticism that it has triggered a “race to the bottom” among countries in terms of regulatory oversight of industries. In India, of course, we have way too many regulations, and reams of red tape to cut. However, to bring a doctrinaire approach to, say, cutting corporate taxes – there is speculation about whether Finance Minister Arun Jaitley will do so in Budget 2018 – is also flawed.

Bottomline?

There is no need to go into paroxysms of angst — nor give in to rapture — over our standing in what is, like all indices, an ideologically driven project.

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Published on January 24, 2018

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