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GS-II :

A development that will hardly put India at ease

  • 31 August, 2020

  • 5 Min Read

A development that will hardly put India at ease

Context:

  • The article talks about the recent World Bank’s decision to halt its annual ‘Doing Business’ report on data authenticity issues.

India’s position:

  • India has consistently sought to improve its Ease of doing business index ranking, as a means to attract foreign investments into India.
  • India’s has achieved remarkable progress in its ease of doing business ranking by registering a steep improvement from 142nd position in 2014 to 63rd rank in 2019.
  • Since 2015, India has invested considerable political and administrative capital to improve India’s global ranking, with impressive success.
  • The World Bank has proposed the conducting of a systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports.

Issues:

  • The World Bank’s own internal watchdog, the Independent Evaluation Group, in its 2013 report, has widely questioned the reliability and objectivity of the index.
  • Available evidence point to the lack of correlation between the improvement in ranking and other critical economic indicators.
    • Despite impressive improvement in the ease of doing business rankings for India, there has not been proportionate improvement in foreign investment inflows or other important economic indicators like capital formation and output growth.
    • China, on the contrary, attracted one of the highest capital inflows even though its ease of doing business ranking was low.
  • There are many shortcomings in the design and implementation of the index. Hence EODB report has many design flaws.
    • The data used for computing the index are obtained from larger enterprises in two cities, Mumbai and Delhi, by lawyers, accountants and brokers and not from
  • There is huge deviation in the findings of the doing business report and global enterprise survey on issues like the ease of legal and regulatory processes for new industries.
  • Flawed basis: The article questions the theoretical underpinning of the ease of doing business index.
    • The article argues against simplistic generalisations that that minimally regulated markets for labour and capital always produce superior outcomes in terms of output and employment.
  • The focus on reducing regulations based on the “minimum government and maximum governance” principle has had unwarranted implications.
    • For instance, to meet the ease of doing business targets, mandatory inspections are being done away with and “third party” inspection and employers’ self-certification are being promoted.
    • This could severely compromise safety standards of factories.
    • The relaxing of labour laws in a move to further ease doing business, could go against the interest of workers.
  • There have been concerns raised about the authenticity of the country-level data and also the changes in underlying methodologies made recently.
    • Just the methodological changes have said to have impacted the rankings of many countries without any actual change in the ground realities.

Way forward:

  • Apart from relying completely on the WB’s ‘Doing Business’ report guidelines, India should also work towards coming up with a domestic policy measure to not only encourage foreign investments but also empower the already existing domestic players with easier business opportunities.

 

Source: TH

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