Ease of doing business: World Bank’s revamped index will also put onus on govts

The Business Enabling Environment report that will replace the ease of doing business report needs to be less political, and may have to do away with ranking of nations.

The World Bank is preparing to launch a revamped version of its Ease of Doing Business Index which was earlier mired in controversies. The multilateral lender was forced to pause the publication of its Doing Business ranking report in September last year. The controversial ranking system was created to help investors gauge the business climate of various countries. The first edition of the revamped report is slated for April 2024 and the new version will be titled Business Enabling Environment (BEE).

The multinational organisation had stopped the publication of EoDB report in the wake of a data-rigging scandal involving four countries including China and Saudi Arabia. The enquiry that led to the discontinuation of the report had found that the rankings were changed under pressure of funding. However, the new report may put even greater onus on national governments to balance a tricky concept called ease of doing business.

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India’s Ease of Doing Business ranking saw a significant improvement during Prime Minister Narendra Modi’s reign. The government did make some progress in making it easier for businesses to operate in India by scrapping around 2,000 archaic laws, some of them from the British-era. India’s ease of doing business ranking moved up a remarkable 79 notches over a period of five years to grab the 63rd spot in 2019, according to the last report published in 2020. It was the 17th edition of the EoDB series.

The Modi government has decriminalised several offences and made several changes in various Acts such as Merchant Shipping Act and Drugs and Cosmetics Act, 1940, to improve the country’s business climate. A mega bill with an aim to enhance ease of doing business is expected in the upcoming Winter Session in Parliament. The Bill will reduce punitive measures for a range of minor offences from prison term to fines. 

There is no doubt that a global index will push national governments to fix archaic notions of doing business. Take India’s case for example. The country is undergoing the exercise of rationalising over 30,000 compliances. The major upside of this effort is that it creates a positive business environment that will make the country an attractive destination for foreign direct investment (FDI). However, enhancing ease of doing business is a tricky business in itself as it can also promote corruption, unfair wages and thus injustice to labour, and increasing laxity in behaviour of companies due to less stringent penalties. The competition among nations can also result in utter disregard for the environment.

Fixing flaws of ease of doing business index

Last year’s controversy was not the first, but it was the last straw. The Bank’s chief economist, Paul Romer, had resigned citing data manipulation. An earlier internal evaluation in 2008 had also highlighted lack of transparency. 

The agenda of assessing the Doing Business climate was to promote global development by making it easier for the private sector to operate. One major flaw in the previous rankings was that it ostensibly measured the reforms that made procedures easier on paper, but was unable to account the real merit in functioning of these reforms such as leading to more companies being created, and if so where and by whom. Simply said, the earlier report did not assess real development. 

One suggestion for revamping the EoDB index is that it needs to be less political and therefore without any rankings. By ranking countries, nations are pitted against one another while reforms aren’t a race. An improved business environment must be seen as a means to an end, but not an end in itself, according to people who back the ‘no ranking’ call. The revamped index must consider quality over quantity.

There were other flaws as well which need to be fixed. The earlier methodology did little to distinguish between good procedures, such as ensuring compliance with environmental rules, and unnecessary red tape. The same must not be a problem in the upcoming version.

To improve transparency, independence and credibility, the World Bank may look into establish a committee with membership from other development organisations. That committee can be tasked with overseeing the elaboration of each report. It would also hear appeals from governments who feel that the index does not correctly capture their situation.

The Business Enabling Environment report 

The World Bank now looks to roll out the report with limited coverage. The first edition is expected to cover only 40-50 countries, while the subsequent editions will keep on adding the numbers till the third report which will cover 120-150 countries. Previously, the World Bank ranked as many as 190 economies based on their performance in about a dozen indicators. The upcoming change is with the view to refine methodology, consistent with improvements in a new measurement project. 

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The multilateral body also said that it has undergone a stakeholder consultation process for the BEE in February-March 2022. This has been done in the wake of controversies surrounding the rankings which also dented the credibility of the Bank’s ranking of countries on ease of doing business. The goal of the exercise is to come out with a new system that would be far more robust and credible than the earlier one.

The opinion is divided on the need for a system for ranking ease of doing business. This becomes especially pertinent considering how countries are being pushed towards adapting technologies in the wake of the pandemic and how these adaptations are tailor-made. For example, Bhutan recently made it possible for small business owners to register their companies through a government website and receive automatically-generated legal documents by email in seconds. While the same may not have reflected much in the rankings, the step was a significant help for businesses in the country.

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Prachi Gupta is an Assistant Editor with Policy Circle. She is a post graduate in English Literature from Lady Shri Ram College For Women, Delhi University. Prachi started her career as a correspondent with financialexpress.com. She specialises in policy impact studies.