The Daily Fix: India’s rise up Ease of Doing Business index is good – but the story has another side

An old adage about standardised tests is that the only thing they really test you on is how well you are able to take a standardised test. On this score, Prime Minister Narendra Modi’s government has done remarkably well, taking aim at the World Bank’s Ease of Doing Business Index from the very start and ensuring that India moves up on the list. The figures from 2018 show that India has moved 23 places up to 77, and is now within striking distance of the government’s aim of getting within the top 50 countries of the world. Compared to the ranking of 142 in the final year of the Congress-led United Progressive Alliance government, this is quite a dramatic improvement.

The World Bank’s Ease of Doing Business Index is a much discussed, much criticised list that ranks countries on 10 parameters that the international organisation believes best reflect the ease (or difficulty) with which new firms in particular can operate. As with any global survey effort, it is inevitably an inadequate exercise. In India, for example, it findings are limited to conditions in Delhi and Mumbai. Both are huge cities that are crucial to Indian business, but they are hardly representative.

Indeed, New Delhi has made no secret of the fact that it focused on improving things in those two cities with the express aim of climbing up this World Bank ladder. A single-window clearance system in Delhi and an online permit approval system in Mumbai, for example, helped achieve this ranking. By and large, this is not a bad thing: working on conditions in those two cities should indeed set an example for others in the country. If moving up the list means more investment and capital entering India, it might help nudge all governments, Centre, state and city, to attempt more reforms.

However, a report released by the NITI Aayog in 2017, which the government later distanced itself from, pointed out that the experience of many outside Delhi and Mumbai was substantially different. While Foreign Direct Investment has been steadily improving in India alongside the rise on this index, the impact of this global capital is still limited: it isn’t necessarily helping push the Gross Domestic Product or expand Gross Fixed Capital Formation or expand manufacturing.

Not a report card
Moreover, as many have pointed out, the Ease of Doing Business Index cannot be viewed as an economic or overall report card. It suggests regulatory impediments for firms have been cleared away. But consider what else is happening in India: the fiscal deficit is growing, banks are grappling with the twin balance-sheet problem, major regulatory and audit lapses remain, the government appears to be set on undermining key institutions, such as the Reserve Bank of India, and the ruling Bharatiya Janata Party is committed to creating an atmosphere that is religiously tense, allowing some violent organisations to act with impunity. Just because it is easier to do business, that does not mean a company will want to do so if conditions in India are so unsettled.

The government should not delude itself into believing that this index is all it needs to focus on. As management gurus would say, don’t let the process defeat the purpose. Consider New Delhi’s response to its woeful ranking on the Human Capital Index, also from the World Bank, which uses health and education indicators to create a similar ranking: It said it would ignore the findings, and added, that “adult survival rates, stunting, and under-5 mortality are outcome indicators [which] will change at a relatively slow rate as compared to process indicators used in the Ease of Doing Business”.

This attitude of only picking up the indices that show India in a good light, while ignoring others, even from the same organisation, reflects how blinkered the government’s approach can be. The same goes for a leadership that extols India’s rise up the index and how the economy is gleaming, even as the government is accused of threatening to use emergency powers against the Reserve Bank of India, which has been responsible for keeping India’s economic ship steady. The government should ponder this: what meaning will fixing regulatory obstacles have if the country’s economy and social fabric is being torn to shreds at the same time?