Context

• The World Bank halted its annual publication, ‘Doing Business’ report, on data authenticity issues (as it detected irregularities of data for a few countries).
• A systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports is being conducted.

Rankings and ‘Make in India’

• India has sought to improve its ease of doing business index ranking, as a means to attract investments to achieve the targets set for ‘Make in India’, that was announced in 2014. 
• The initiative 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 success in boosting its ease of doing business ranking is spectacular, to 63rd rank in 2019, up from the 142nd position in 2014. 
• The World Bank decision to audit the ‘Doing Business’ report for the last five years may soon cause discomfort by shining a spotlight on the sharp rise in India’s ranking.

Flaws with Ease Of Doing Business Report

Questionable predictive power

• There is no credible association with improvement in the ranking and a rise in investment inflows or output growth.
• Russia’s ease of doing business rank jumped from 120 in 2012 to 20, six years later, taking Russia ahead of China, Brazil, and India, but without becoming a magnet for investment inflows. 
• China, on the contrary, attracted one of the highest capital inflows but its ease of doing business ranking was low and hovered between 78 and 96 for the years between 2006 and 2017.

Faulty design and implementation 

• The Indicators used for the index are as per the statute and not in reality. 
• The data for computing the index are obtained from larger enterprises in two cities, Mumbai and Delhi, by lawyers, accountants and brokers not from entrepreneurs.

Implications for India

• Since 2015, the government has invested considerable political and administrative capital to improve India’s global ranking, with impressive success. 
• But the enhanced ranking has meant nothing on the ground. 
• It has also failed to augment investment and output growth. 
• The share of the manufacturing sector has stagnated at around 16-17% of GDP, and 3.5 million jobs were lost between 2011-12 and 2017-18. 
• Annual GDP growth rate in manufacturing fell from 13.1% in 2015-16 to zero in 2019-20, as per the National Accounts Statistics.

Conclusion

• India should do some soul searching as to why the substantial rise in global ranking has failed miserably on the ground.

Reference:

1. https://www.thehindu.com/todays-paper/tp-opinion/a-development-that-will-hardly-put-india-at-ease/article32482847.ece