‘Doing business’ rankings don’t seem right

The advancement in India’s rank in the World Bank’s ‘ease of doing business’ ratings does reflect the Centre’s efforts to improve matters . The progress made seems all the more impressive in view of our improved ranking in the Global Competitiveness Report of WEF, from 71 to 55. Surely, there is a lot happening in the business environment which may not have translated into actual investment, which is affected by other considerations.

The World Bank has revised the methodology for calculating the rankings; it has introduced quality parameters too, which puts us at 130 in a set of 189 countries compared with 134 last year. However, the new methodology does raise a few doubts.

India’s improvement has been marked in two of the 10 variables that go into this ranking. The first is on starting business where both the number of procedures involved and time taken have come down. This has also lowered the cost of starting business. There is scope here for further improvement, though there is need for initiatives from State governments, too.

The other variable that’s seen improvement is accessing electricity, where the number of procedures has come down from seven to five and the time from 106 to 90 days. Here again, there is scope for improvement. But there have been no changes in the other eight parameters such as credit, taxes, trading, insolvency, protecting minority interests, enforcement of contracts and so on.

If this picture is juxtaposed with the earlier World Bank report, the solution becomes clear: States need to work harder. None of the States had crossed the threshold of meeting 75 per cent of the desirable elements required for enabling business; seven States achieved between 50-75 per cent.

The other factors relating to insolvency or taxation would lie more with the Centre, which is still trying to grapple with issues of debt recovery. Here the problems seem to be entrenched and solutions have not yet been found. On taxation, hopefully the GST will make us move up the ranking table; the existing multi-layered system is a major hindrance to business.

However, this particular report of the World Bank does raise questions about the overall approach. The change in ranking of countries has tended to be very drastic in a large number of cases. It is hard to believe that the situation could have changed so perceptibly over a short span oftime. Uganda, for instance, has improved its rank from 135 to 122 with one element on obtaining credit showing an improvement in rank from 128 to 42. Here again, the element of depth of credit information index jumped from 0 to 7 which enabled the rank to go up.

With virtual status quo on other scores, such a sharp movement casts some doubts on the final result. Similarly, for Kenya, the sharp improvement in rank was due to the electricity connection factor where the number of days involved came down from 145 to 110 and the related cost from 1081 per cent of per capita income to 1011 per cent, which by itself is very high. The rank improved by 14 positions.

These scores at times seem less than convincing. Too much seems to have changed in just a year, going by these assessments. Further, a lot of these objective scores are based on what governments state in their policies or manuals. At the operational level it could be different, which is hard to capture on a global scale.

The World Bank’s concept is certainly novel as there is no other such benchmark for comparing countries. However, wide swings in ranking do raise a red flag. To appear really convincing, the improvements should be able to sustain themselves over time.

The writer is the chief economist at CARE Ratings. The views are personal