28 Oct 2016 19:34 IST

Ease of biz: How World Bank got the government’s goat

In moving India up just one notch, the report ignores fundamental and transforming policy changes

The World Bank came out with its annual Ease of Doing Business report a couple of days ago. The government, which was expecting India to go several notches up on the list, thanks to the recent reform measures, was left bitterly disappointed as the country moved just a notch from 131 last to year 130 now.

So disappointed was the government with the World Bank ranking that none other than Prime Minister Narendra Modi and Commerce Minister Nirmala Sitharaman sprang to its defence. Modi asked the top officials at the Centre and States to review the World Bank’s report and suggest ways to improve ease of doing business. He even asked them to come up with a report on the “potential areas for improvement” in a month’s time.

Not to be left behind, Commerce Minister Nirmala Sitharaman also weighed in with her thoughts. She said, “Team India has been doing a lot of work and the report does not adequately capture this. Not only the government of India, but every State is actively engaged and wants to ease the situation… While I’m not discouraged, it is disappointing.”

Interestingly, India Inc has also defended the government robustly, something that does not happen very often. It pointed towards the passage of the Insolvency Code and the GST Bill as important measures in easing the business environment, adding that the World Bank had not taken them into consideration due to its June 1 cut-off date.

Investment climate

CII President Naushad Forbes said the World Bank had taken into consideration reforms undertaken only in Mumbai and New Delhi which, he said, was another anomaly.   

As a further endorsement of the government’s reforms measures, the chief of industry chamber Ficci said the investment climate had improved, as seen by the higher flows of foreign investment into the country. 

Now all this may sound sweet to the government’s ears, but there is an interesting sub-text to this whole episode. The government seems to have pinned too many hopes on a higher rank in the World Bank list. Its avowed intention is to get into the top 50 of the list. It is as if the government’s entire policy initiatives on the economic front need to be validated by the World Bank. This government seems a little too obsessed by the notion of ‘ease of doing business’.    

This is not to say that easing regulations and creating a more conducive environment for business to flourish are not important. But the government seems to be making ‘ease of doing business’ the cornerstone of its economic policy, at the risk of ignoring more pressing economic issues.

Patchy growth

The government is in a curious bind at present. Though India’s economic performance is one of the bright spots in a gloomy global economic environment, and the government never fails to brag about it, things on the ground seem more complex. Industrial growth has been patchy this year; the growth rate has stayed in positive territory only for four months in this fiscal so far, and this raises some important concerns about the quality of data, which the country’s Chief Statistician, TCA Anant, to his credit, is working hard to set right.

Private investment is yet to pick up significantly, and, until that happens, achieving over 8 per cent growth will be challenging as no significant growth is seen in other sectors such as services and agriculture.

The government is also constrained by the fact that it can only create a conducive environment for boosting investments by easing regulations; the actual investments have to be made by private sector players. Now, for India Inc, ease of doing business is just one among a myriad set of factors such as credit availability, market demand, and so on, that go into making investment decisions.

No emerging economies

So the government can, at best, play the role of a facilitator and nothing more. Unless, of course, it is planning a major hike in capital expenditure, of which there are few signs now.

As an aside, the region that made the most rapid strides in the World Bank ease of doing business list is Sub-Saharan Africa, which accounted for 30 per cent of the regulatory reforms in 2014-15. The countries that showed most improvement in this area are: Costa Rica, Uganda, Kenya, Cyprus, Mauritania, Uzbekistan, Kazakhstan, Jamaica, Senegal and Benin. Though these rankings are relative in nature, the absence of any of the emerging economies is striking.

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