From nutrition to press freedom, a number of global indices have shown India in poor light in recent years. Government officials have criticized them as being unscientific or rigged. Yet, one key set of rankings has escaped their critical appraisal: the Ease of Doing Business (EoDB) rankings produced by the World Bank.
The EoDB rankings were supposed to measure an economy’s friendliness towards businesses. The World Bank encouraged countries with opaque and stringent regulations to pursue economic reforms and move up the order. An improved EoDB scorecard would help a country attract foreign capital, boosting productivity and growth, it said. Many countries, including India, bought into this narrative. In fact, raising India’s position in doing-business rankings was a key goal of the Narendra Modi-led government in its early years.
The EoDB rankings were eventually disowned by the World Bank. After whistleblower complaints, a 2021 investigation by the multilateral lender showed that they had been manipulated. China’s rank was bolstered at a time when the World Bank was trying to raise capital from the Chinese. The EoDB team also bumped up rankings of oil-rich Gulf states that had employed advisory services of the World Bank. Beyond ethical lapses, the probe also highlighted methodological problems with how the EoDB indices were designed. The indices left a lot of room for discretion and ad-hoc adjustments.
The World Bank now claims it has learnt its lessons from that scandal. It has revived the doing-business project and is repackaging the rankings under a new brand name: B-Ready (for Business-Ready). The B-Ready manual and methodology handbook published by the World Bank in May indicates some design tweaks in the indices. But several critical concerns remain unaddressed.
One key issue with the EoDB rankings was that they relied largely on de jure laws and regulations in an economy. If regulations were loosened, that country’s score would rise, regardless of whether or not their actual implementation changed anything on the ground. The World Bank aims to address this by relying more on firm-level surveys in its B-Ready rankings. This is an improvement. But the surveys are still going to be small-scale. A survey of about 1,000 firms based in Delhi and Mumbai will tell us very little about business conditions in India as a whole. Yet, that’s the kind of database World Bank will be using to prepare B-Ready metrics.
In different countries, the sampling frame (or the list of firms to be sampled) will differ. The World Bank’s manual says that it will choose the best available list. In some countries, those may be provided by local chambers of commerce. In others, the data may come from regulatory authorities. In other words, the sampling frame will diverge across countries: in nature, quality, coverage and representativeness. Yet, the World Bank will present the results as if those differences didn’t exist.
The second key issue with the original rankings was a lack of rank comparability over time. The World Bank would keep changing the sample of countries included and the methods used to assign scores. This meant that rank changes often reflected technical modifications rather than any improvement in the business environment.
For instance, a ‘jump’ in India’s rank from 130th to 100th in 2018 largely reflected such technical modifications. Adjusting for these, the improvement in India’s rank would have been much more modest, calculations by Justin Sandefur and Divyanshi Wadhwa of the Centre for Global Development showed. This issue is going to persist in the new rankings, which will undergo frequent upgrades, making it difficult to track a country’s progress over time.
Third, the EoDB rankings hid qualitative judgements behind a facade of objective quantitative rankings. But the revised methodology will reduce discretion only to a limited extent. The World Bank bureaucracy will still have plenty of opportunity to make ‘adjustments’ to the data collected.
Instead of reviving the discredited rankings, the World Bank could have commissioned qualitative studies to better understand and track the business environment across countries. These studies would not have been useful for building global indices. But they would certainly have been useful for policymakers in developing countries, and allowed them to choose the kind of reforms that suit the particular context of their governance systems.
Writing in Mint in 2017, economists Sabyasachi Kar and Spandan Roy had argued that the business environment in a developing country such as India is often shaped by ‘deals’ between the state and business leaders. Such deals explain why, for example, “it takes some firms in India only one day to get a construction permit while it takes other firms around one year.”
If we need to understand how such deals are structured, and what are the conditions under which a country transitions from a deals-centric economy to a rules-centric one, we need either careful qualitative research or rigorous nationally representative data. Limited cross-country data from unrepresentative surveys won’t help much.
Will Indian officials raise these issues with the World Bank and demand a review of the B-Ready plan? Or will they start asking tough questions only if India slides down these rankings?
Pramit Bhattacharya is a Chennai-based journalist. His Twitter handle is pramit_b
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Updated: 20 Jun 2023, 12:42 AM IST
