Decoding ‘Ease of doing business’ rankings

India has seen a humongous jump in the Ease of Doing Business rankings during recent years. Once placed at 142 in 2014, India stands at 77th in the 2019 rankings. A jump of 65 places over the last four years should ideally mean setting business in India is becoming easier. India is the only country to feature in the Top 10 improvers list, for a second consecutive year. The improvement in the ease of doing business rankings is being seen positively around the world. However, the question still hovers many minds, is it really happening? Has doing business in India really improved that far during the recent past years? You will have the answer by the end of this article.

What is ‘Ease of Doing Business’?

Ease of doing business is an international project by the World Bank Group (WBG) that provides an objective measurement of business regulations and their implementation in various countries. It ranks economies based on a numerical index based on pre-decided factors, covering across 190 economies from Afghanistan to Zimbabwe. The report is released every year and the latest 2019 report is the 16th edition in the series. The report intends to analyse economic outcomes, identify what exactly one economy did right that the other economies failed to.

The factors considered

The index is developed by aggregating data on 11 life areas of business and ranking every economy on the same factors. These indicators are as follows:

Each economy is ranked on all 11 factors and a numerical aggregate of the same is the ‘Ease of doing business’ (EoDB) score. A higher score indicates better regulatory reforms in the economy and is accordingly ranked higher while a lower index indicates poor reforms in the economy and is ranked lower. E.g. In 2019 report, New Zealand has an EoDB score of 86.59 and thus, ranks No. 1 amongst all economies while Somalia ranks 190 with an EoDB score of 20.04. India has a score of 67.23 and is accordingly ranked 77.

Process of aggregating data

Doing business team analyses the economic reforms going on around the world economies. For the 2019 report, it captured and analysed a record 314 reforms during the period June 2, 2017, to May 1, 2018. The data are collected through communication with expert respondents including private sector practitioners as well as government officials, through questionnaires, conference calls, written correspondences and even by visits.

There are four main sources that the team relies on:

  1. Relevant laws and regulations – two-thirds of the data in the report is based on the reading of the laws and regulations
  2. Doing business survey respondents – inputs of approximate 13,800 respondents were considered in the 2019 report; these include individual professionals but not firms
  3. The Governments – summarised input of the respondents is shared with governments to point out the reforms not considered in the report, to bring completeness
  4. World Bank Group regional staff – who provide information to verify the conclusions of the report based on the above

The criticism

The Ease of doing business score though indicates a fair and an objective assessment of economic reforms, it suffers from various criticisms, as any other survey does.

Selective factors

The index is developed based on selective 11 factors. While these factors are comprehensive, they do not necessarily disclose the whole picture of the economy. An economy like India where the incidence of bribery and corruption are high, the index fails to acknowledge the same, as bribery and corruption are not a factor considered in the report. Similarly, India has a huge population and a big market size, however, neither the quality of the labour force is high, nor the market is homogenous.

There are other factors like macroeconomic stability, development of financial systems, lack of security etc. which the report fails to consider.

Focus on laws and regulations alone

Two-thirds of the report is directly dependent on merely reading of the laws and regulations. This means if a country is rigorously establishing and amending laws and regulations, it would automatically get a higher score and a higher rank. However, improving laws and regulations do not automatically evolve into the improvement of the economy. The implementation of the same is a real ardent task, especially in an economy like India which lacks compliance with laws.

Reliance on expert respondents

The report is based on responses to surveys collected in various forms from professionals who possess the expert knowledge of the field and those who are expert in conducting the types of transactions which are being measured. However, such surveys often fail to capture or highlight the variations in the experiences of entrepreneurs. An opinion based on the responses of a few professionals may not necessarily indicate the real status of a diverse economy like India.

Focus on the largest business city

Ease of doing business conducts its surveys and assesses the state of affairs only in the largest business city of the country. In economies with a population of more than 100 million as of 2013, it also covers the second largest business city. Thus, the score for India is merely based on the survey of cities like Mumbai and New Delhi. And it is fairly clear that though these cities are the centre of economic activities, they do not necessarily represent the entire economy.

Only domestic and formal sector

The index analyses the laws and regulations only for domestic businesses. Thus, wherever there is a different set of rules and regulations for foreign businesses, the index fails to consider the same. Besides, the index focuses on the private and formal sector, however, India has a huge informal and unorganised sector which is an essential part of the economy. These sectors are kept away from becoming part of the formal economy because of the very same laws and regulations which are being analysed by the index.

Is ease of doing business in India improving?

The answer is still, yes. Though there are a lot of criticisms surrounding the Ease of doing business report, one true aspect that is definitely highlighted by the report is the legal reforms. In recent years, the Government has been constantly making efforts to improve the legal system and 1,420 acts being repealed in a record time period, is enough evidence to support the same. However, it would take time to see the impact at the ground level.

India is a country with a large number of entrepreneurs who are unorganised and involved in small scale businesses. So, it’s apparent that bringing in a real change would be a long and lengthy process. That’s also the reason why, the legal and financial professionals of India have developed the acumen which is lauded across globe, and are also the backbone of this economy. They act as the real guide to the businesspersons with all the compliances and the legal framework and that’s going to stay the same for a while.

So, is India trying to improve ease of doing business? Absolutely! Will India be really successful in bringing it at par with the developed countries? Well, let time speak for itself.