World Bank pauses Ease of Doing Business rankings

The World Bank has “paused” the publication of Doing Business Report, which carries the Ease of Doing Business (EODB) Rankings. The effective suspension of the publication of the rankings has been announced in the wake of a number of reported irregularities regarding changes to data in the 2018 and 2020 reports published in October 2017 and October 2019. In a statement on Thursday, the Bank said it was conducting a “systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports”. “We have asked the World Bank Group’s independent Internal Audit function to perform an audit of the processes for data collection and review for Doing Business and the controls to safeguard data integrity.”

The culmination of this process will be followed by a retrospective correction in the rankings, the statement said. “The Board of Executive Directors of the World Bank has been briefed on the situation as have the authorities of the countries that were most affected by the data irregularities.”

The Union ministries of finance and commerce did not respond to email queries on the effective suspension of the rankings.

But officials from the two ministries, who spoke on the condition of anonymity, said the Bank may have briefly paused the publication but not ended it, and a review would make it more robust and credible. They added this would neither halt nor deter India’s commitment towards Ease of Doing Business. In fact, India has gone a step further in striving to achieve Ease of Living, the officials said.

“For example, just see reforms in tax administration. The Prime Minister [Narendra Modi] recently unveiled faceless assessment system in the income-tax matters to curb corruption and released, for the first time, a taxpayers’ charter. Next month, faceless appeal system will be introduced. All these are part of ongoing reform aimed at Ease of Living for the common man, which will also benefit businesses,” said one of the officials on condition of anonymity.

A second official said wide-ranging reforms have been introduced for the Ease of Business keeping both agriculture and industry in mind. “Farmers have been unshackled now so that they can sell their produce to lucrative markets. The commerce and industry ministry is considering introducing a technology-based single-window system soon that would ensure expeditious multiple regulatory approvals at both the Central and state levels from one point. Reforms are ongoing and not dependent on the ranking of the Ease of Doing Business.”

The policy regime in India places a lot of importance on the rankings. After assuming power in 2014, the Narendra Modi government set a target for India to be among top 50 countries in the rankings. In 2014, India was ranked 142nd. It jumped to the 63rd position among 190 countries in May 2019.

The rankings are based on a country’s performance on 10 indicators: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

To be sure, this is not the first time the rankings are courting controversy. In 2018, Paul Romer, the then chief economist of the World Bank, quit after criticising the rankings in an interview with the Wall Street Journal for having “conveyed the wrong information” about the business environment in Chile. According to a Reuters story, Romer told the newspaper the decline resulted from methodological changes, rather than a deterioration of Chile’s business environment, and may have been the result of the World Bank staff’s political motivations.

In his book, The Rise and Fall of Nations: The Rules of Change in Post-Crisis World, Ruchir Sharma, the Chief Global Strategist and head of Emerging Markets Equity Team at Morgan Stanley, criticises these rankings on various counts. “The World Bank… puts out rankings of countries for everything from quality of roads to how many days it takes to open a business, and these rankings have become very popular,” writes Sharma. “That creates a problem, as more than a few countries have started hiring consultants to help them raise their rankings (another example of Goodhart’s law in action). In 2012 President Vladimir Putin set a goal of raising Russia’s rank for ‘ease of doing business’ from 120 to top 20 within six years, and he soon saw results. By 2015, Russia was ranked at 51, more than thirty places ahead of China, and sixty places ahead of Brazil and India. That raised a question: If it was so easy to do business in Russia, why wasn’t anyone doing business there? Moscow in 2015 is increasingly hostile to and isolated from international business, far more so than China or Brazil or India. To the extent possible, I try to avoid relying on numbers that are vulnerable to political manipulation and marketing.”

Other scholars have also criticised these rankings. A 2016 Indian Institute of Management Bangalore working paper by Vivek Moorthy and A Arul Jason argued the rankings cannot capture the true cost of doing business in countries with a large unorganised sector. Another 2019 paper by Sabyasachi Kar and others argued the fundamental premise of the rankings, that rules are the be all and end all of Ease of Doing Business in a country, might not be true. What matters for doing business, the paper argues, is not rules but deals struck between firms and the political or bureaucratic arms of the state.

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