Is our obsession with the World Bank’s ease of doing business rankings justified?

  India pursuits for improving its rank in World Bank’s Ease of Doing Business rankings as part of an aggressive bid to improve India’s image as a business-friendly economy in the eyes of global investors.

          While the intent behind this image make-over is laudable, it is worth asking what influence such rankings have on investment decisions and economic performance of major economies around the world. In principle, the rankings ought to function as a guide for investors who have funds to invest and need to decide where to put their money. But the reality is quite different.

No co-relation between investments and rankings-

•  A look at the rankings of major emerging markets during the period 2010-15 shows that there is hardly any relationship between foreign direct investments (FDI) and the ease of doing business rankings. The same is the case if we examine trends in growth and the average rankings of these economies.
• Take the example of China, widely regarded as the biggest economic success story in recent history. The country has never even figured among the top 50 countries (it is ranked 78 among 190 countries in 2017 rankings) in the Ease of Doing Business rankings but has consistently attracted investments from all around the globe.
• By 2015, Russia was ranked at 51, more than thirty places ahead of China, and sixty places ahead of Brazil and India. but still Russia is not regards a investment destination as these countries.

Reason for absence of co-relations-

• It is aruged that ease of doing business rankings cannot capture the real cost of doing business in countries with a large unorganized sector where costs of production are often lower.
• The methodology used by the World Bank keeps changing, and changes over the past couple of years were such that it is no longer possible to compare rankings of 2016 and 2017 with those of the past.
•  In the process of improving rankings a new trend has emerged where as more than a few countries have started hiring consultants to help them raise their rankings.

Conclusion:

          While the debate is far from settled, the striking absence of any correlation between economic performance and score on the World Bank’s index should make us pause, and consider whether it is better to focus on structural reforms or long-term investments in human and physical infrastructure. Such improvements may help us improve our rankings as well but that should at best be a byproduct rather than a target of public policy.

By: Deepak Thakur