CONTEXT

• Recently, the World Bank Group has 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.

DOING BUSINESS PROJECT

• The project was launched in 2002, with the objective to measure business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
• By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, it encourages economies to:
  • compete towards more efficient regulation;
  • offers measurable benchmarks for reform;
  • serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy;
  • offers detailed subnational studies, which exhaustively cover business regulation and reform in different cities and regions within a nation.
• These studies provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas.

RAMIFICATION OF THE DECISION

• The World Bank Group scrapped the index based on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
• The World Bank’s decision has wide ramifications, as the index serves varied purposes.
  • Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments.
  • Based on the Index, national leaders often set EDB rank targets. This helps them measure domestic policies against global “best practices”.
• But some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion.

GAP BETWEEN RANK AND ECONOMIC OUTCOMES

• • The theory underlying the EDB index could be suspect, the measurement and data could be faulty, or both.
  • India ranked low, around 130-140, till 2014, however improved to the 63rd position in 2019-20, but the proportional success is absent on the ground.
    • The annual growth rate in GDP manufacturing (at constant prices) fell from 13.1% in 2015-16 to (-) 2.4% in 2019-20.
    • 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.
    • Thus, raising the question – Why is there such a disconnect between the stellar rise in EDB index rank and economic outcomes?

• The EDB index also seems vulnerable to a tweaking of the underlying method. 

• • For instance, 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 went down when the socialists were ruling despite no changes in policies and procedures.
  • This was reportedly the result of the fine-tuning of the methodology and had profound political implications.

WEAKENING OF LABOUR REGULATIONS IN INDIA

• India has weaponized the mandate to improve the rank in the EDB index to cut down labour laws and their enforcement and bring them close to the free-market ideal of ‘hire and fire’.
• Taking the lead from Maharashtra’s administrative decree, most of the states have rendered labour laws toothless by dismantling official labour inspection systems and allowing employers to file self-regulation reports.
• The government has allotted critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies.
• The Labour Department’s inspection is no longer mandatory.
• Such abdication of the government’s responsibility towards workers has reportedly affected industrial relations.
  • The workers’ strike at Wistron’s iPhone assembly factory in Karnataka last year is an example.
• Further, severe industrial accidents are rising, damaging life and productive industrial assets which may be associated with the lack of independent inspections and employers’ self-reporting of labour law compliance.

CONCLUSION

• The World Bank’s decision to scrap its annual publication Doing Business report is welcome.

• • Investigations into “data irregularities” in preparing the EDB index, as brought out by the independent agency, seems to confirm many shortcomings.

•  It appears motivated to support the free-market ideal.

• • Strong leaders seem to have used their position to manipulate the index to suit their political and ideological ends.
  • Even India claimed the success of its Make in India initiative by relying on its ranking on the EDB index without tangible evidence.

• Thus, weaponizing the index to weaken labour regulations, which in turn have resulted in an increase of industrial unrest and accidents.

Reference:

1. https://www.thehindu.com/opinion/op-ed/the-end-of-the-doing-business-rankings/article36576467.ece