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‘Ease Of Doing Business’ Ranking - Is Our Priority Misplaced

The government needs to institute policy measures and EoDB to nurture and create entrepreneur enabling ecosystem for holistic development. Rankings and applause will follow.

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In the “Doing Business” report published by the World Bank, India jumped 14 places, ranking a respectable 63, and amongst the ‘top ten’ reformers; three years running. Equally heartening is improved ranking in 7 of the 10 metrics. 

Another measure of credibility is the “distance to frontier” (DTF) metrics that gauges how far an economy’s policies are from global best practices. India’s score improved by10%. Significant, as it measures progress in absolute terms.

The DB index tracks 10 indicators, linking various sub-indicators, aggregating into a score that ranks the 190 economies. 

Beyond the ranking 

The methodology has acquired widespread acceptability, winning the perception battle, largely because it is easy to evaluate, simple to measure, and more importantly immensely actionable. 

But these very features are its frailty too.

A matter of great concern is the very small sample size (sometimes only a single firm) which skews the inference. India’s business ‘produces and serves’ beyond Mumbai and Delhi.

Also, the methodology suffers from a marked bias towards deregulation, even if the regulations support holistic growth. Equally concerning is overt focus on regulations and not enough on the actual implementation. 

Shrill applause, deafening celebration

While the momentum and the effort of the government towards EoDB are laudable, it is the direction and the approach that needs to be questioned.

EoDB measures only what it says it measures, i.e. how ‘business-friendly’ are the regulations.The concern is not the number of regulations, but the speed and convenience of compliance. In the absence of a nationwide sample the EoDB rank is only indicative, symbolic even. Interpreting and extrapolating provides a false sense of achievement.

The government must focus beyond the 10 determining indicators. A Crux study highlights that smaller businesses tend to suffer more if the big corporates benefit from EoDB, at their cost.

Subsidising the elite

The ‘index’ has triggered unprecedented zeal for reform with the unifocal   agenda to ‘improve’ rankings.

However, for the small businesses, reforms have meant the big corporates are ‘gifted’ or acquire cheap land, often without consent. They pay partly taxes, lower duties & interest, and ‘start’ business san registration. 

Speedy environmental clearance, diluted labour laws are key EoDB features. Several states race, coax, and persuade investment, often at the cost of holistic development. Rajasthan, underdeveloped, ranking lower on several development parameters, perches high on labour flexibility and the EoDB.

The improvement in the EoDB ranking doesn’t help small businesses. Labour laws are stringent and inspector rules often choke them to death. They struggle for resources. The benefits of the diluted environmental laws (SMEs do not exploit natural resources) and labour regulations   go to big corporates. In the absence of resources and the unyielding procedures they invest many times more to resolve dispute and enforce contracts.

Misplaced consciousness

Deregulations help the big business, making smaller business less competitive and perpetuating them to inadequacy.

The focus on these rankings at the cost of creating a holistic ‘business’ ecosystem demonstrates our misplaced economic consciousness and manifests our priorities. Regretfully, they shape and preserve them too.

There is no linearity between economic outcome and EoDB. The cheerleaders will do well not to equate the DB ranking with development. 

The government needs to institute policy measures and EoDB to nurture   and create entrepreneur enabling ecosystem for holistic development. Rankings and applause will follow.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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ease of doing business

Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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