An exclusionary benchmark

Doing business report isn’t about economic milieu; it’s about lax regulations.

Written by Maju Varghese | Updated: November 6, 2018 12:36:02 am
india ease of doing business, ease of doing business, world bank, world bank ease of doing business list, ease of doing business list, indian economy growth, indian economy, GST, Good and services act, GST impact, GST effect, Indian express (Picture for representation purpose)

This refers to your editorial, ‘Serious business’ (IE, November 2). It notes the improvement in India’s ranking, but also strikes a cautious note in several aspects. It points out that the key to making business easy is removing systemic concerns. “The scores should improve further next time with recognition of the laws on GST and more companies taking the resolution route under the insolvency.” These are valid points. But should the ease-of-doing-business approach form the benchmark of measuring an economy’s success?

The Doing Business Report (DBR) 2019, the 16th report of its kind by the World Bank Group, comes after the Bank was discredited last year following revelations by Paul Romer, its chief economist. Romer alleged the political motivations of the Bank staff influenced the ease of business rankings and questioned the repeated changes in methodology for calculating the same.

Romer’s main argument is: The report’s often-changed methodology squarely raises question on the integrity of the facts it presents. Romer was not the first to question the report. In 2008, the Internal Evaluation Group of the World Bank had pointed out that seven of the 10 indicators used then were biased against regulations. This is not surprising as the report is a product of the private investment arm of the World Bank, the IFC, and not the development arms such as IBRD or IDA.

The report actually is not about the business climate in a country; it merely looks into business regulations. This led the Independent Panel set up after criticisms from developing countries, particularly India and China, to suggest a name change to “Doing Business, Understanding Regulations”.

Since its inception, the DBR has influenced nations to change their regulatory frameworks, particularly those pertaining to labour, environment, land and taxation. This resulted in large-scale changes in business regulations. There have been 314 reforms globally in 2018 alone, adding to the tally of 3,500 since the inception of DBR.

India jumped 23 places this year to reach 77th position due to reforms that were effected in Mumbai and Delhi. In many speeches, the prime minister has talked of reforms to make business easy. Several of these changes conform to the earlier mentioned trend of diluting environmental and labour legislation put in place as a result of long-drawn struggles. This years’ report carries a special mention of changes in the Shops and Establishment Act resulting in elimination of work restrictions on a weekly rest day.

The atmosphere of easing regulations for businesses have resulted in a tendency to issue easy environmental clearances. The changes in the draft Coastal Regulation Zone Notification 2018 proposes fast tracked single clearance systems, which may be in line with easing doing business but could result in projects that have adverse social and environmental consequences on an ecosystem, already vulnerable to climate change. The draft CRZ limits, in some instances even removes, the requirement to engage with the public and other stakeholders (through public hearing and other means).

Eased norms for environmental clearance, including the absence of public hearing, resulted in widespread public unrest in Tuticorin some months ago.

The ranking of states within the country on reforms implemented on the basis of business action plans of the Department of Industrial Policy and Promotion will further erode regulations. The over emphasis on ease of doing business, without looking into other development priorities, could be disastrous.

In the increase in wealth inequality, for example. India has been ranked 132nd among 152 nations in a new index tracking commitment to reducing income inequality prepared by Development Finance International and Oxfam. India ranked 103 among 119 countries in the Global Hunger Index in 2018, below Bangladesh and Ethiopia. The country’s position fell from 141 to 177 in the Environmental Performance Index, 2018, making the country the fourth-worst on environmental health policy.

The celebration of ease of business rankings and ignoring of other aspects of development as manifested through scores of indices on malnutrition, hunger, education, workers rights, inequality does, of course, demonstrate the priorities of the current government. But it will be in the national interest to have a more inclusive development policy.

The writer is associate director, Centre for Financial Accountability

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