The effectiveness of Ease of Doing Business ranking

Of late, the buzzword is ease of doing business in both domestic as well as international scenarios. While countries are competing at international level to get a good ranking in the World Bank Ease of Doing Business index, within the country states are competing with each other to do equally well on the ranking done by the Department of Industrial Policy & Promotion along with the World Bank.

Ease of Doing Business is an index created by the World Bank at the turn of the century to rank the countries based upon a simpler and more friendly regulatory framework conducive to business operations. Index tries to capture overall regulatory environment in a country covering areas like time taken for starting of a business, getting a construction permit, electricity connection, facility for getting credit, registering property, enforcing of contracts, resolving insolvency, protection of investors. The criteria are worked out keeping in mind small domestically owned companies rather than major multinationals and to that extent has relevance for small business organisations to do business. The World Bank rankings take into account the improvement in the regulatory framework and the reforms undertaken by the countries concerned to bring in the necessary friendly regulatory environment for starting a business.

In the index developed by Department of Industrial Policy & Promotion along with World Bank for ranking of the states, in addition to the criteria of the reforms that were carried out (to bring in the necessary friendly regulatory environment) specific feedback of industries doing business with the concerned states is also taken into consideration .

After the NDA government took over in 2014 along with a focus on ‘Make in India’ they also focused on creating a friendly environment for doing business within the country and accordingly focused on getting a better rating from the World Bank on ease of doing business by proactively taking the necessary reforms.

India which was hovering around 125 in terms of ranking moved up to a ranking of 100 in 2017 and 77 in 2018. Two specific reform measures which enabled India to perform better in terms of ease of doing business criteria of the World Bank are implementation of GST and Insolvency and Bankruptcy Code. Enforcing of contract is one of the weak points for India in the index . Most of it has to do with the functioning of the courts and the backlog of cases there and needs to be focused specifically by Government of India with the active involvement of the Supreme Court.

Domestically also government started focusing on this and started ranking of the states with the criteria developed by the Department of industrial promotion along with the world bank . 2017 Andhra Pradesh and Telangana both topped the list with a first rank together. In 2018 Andhra Pradesh topped the list with a score of 98.4 closely followed by Telangana with a score of 98.33. That Madhya Pradesh with the score of 97.3 was at seventh place shows the intensity with which the states are competing with each other to get ranked.

There is also a school of thought who feel this whole exercise of ranking the countries or the states in terms of ease of doing business may not really serve a purpose. In their view ranking should be a byproduct of the actual reforms but cannot be an end in itself. In their view the fact that dedicated unit of officials working to tweak the domestic reform process to fit into the criteria and climb up the ladder of ranking shows that the jump in the ranking is due to the ingenuity of the dedicated wing of officers working on this rather than to the actual friendly environment to business. They also fear this may lead to mindless deregulatory race. There are also allegations that the methodology is manipulated sometimes to accommodate the interest of some countries facilitating them to move forward without much of a reform process actually being implemented.

After India got interested and started working on improving its rank, Russia and China also have taken the ranking seriously and started working to improve their ranking. However incomplete and faulty it’s always better to have a system of ranking which can make the nations to concentrate on reform path leading to better business friendly environment. The fact that major economies like India China and Russia are getting interested in it also led to a debate on the criteria itself. This can result in the criteria becoming more objective and fair, facilitating better ranking of the countries in terms of ease of doing business. Regarding the objection that this type of ranking could lead to mindless deregulation in any case in most of the developing countries with high levels of corruption the regulatory environment is very poor and with the right connections getting over the regulations is not a major issue. Hence a system of ranking by itself may not lead to mindless deregulation as some fear.