There was jubilation in the government as the Ease of Doing Business ranked India in the 100th spot, 30 points ahead from last year which is supposed to be the biggest jump by any country in the history of doing business report. Mr Narendra Modi, Prime Minister of India welcomed the jump and gave the slogan of Reform, Perform and Transform to further improve the global rank from 100 to 50 and have committed for further reforms.
India was totally disappointed last year after there was no much improvement in its ranking despite making different legislations and the country had expressed the disappoint on the same. The World Bank acknowledges only such reforms which have been implemented in Mumbai and Delhi by 1st June each year. India had challenged the Methodology of the Doing Business report and has formally complained about the non-robustness of the methodology in 2013, particularly for selecting only one city, the city of Mumbai to rate the ease of buying land which has among the highest real estate prices in the world.
The Ease of Doing business has been the subject of criticism from civil society and trade unions as it promotes private business over other rights. The World Bank legal unit has criticized the ‘embedded policy preferences’ under indicators in the ease of doing business indicators which favours the business. The legal unit has also criticized the methodology and has accused the report of having biases ignoring the positive effect of regulations.
World Bank appointed an independent review panel under the chairmanship of South African Planning Minister Mr Trevor Manuel after the report was criticised by countries like India and China after the 2013 report. The panel recommended reforms to the report including doing away with the ranking of countries and recommended the change of name from Doing Business to Doing Business: Understanding Regulations as the former gives an impression of measuring business environment rather than business regulation.
The World Bank Independent Evaluation Group conducted an evaluation of the Doing Business Report in its report suggest that the indicators have been highly effective in drawing attention to the burdens of business regulation, but cannot by themselves capture other key dimensions of a country’s business climate, the benefits of regulation, or key related aspects of development effectiveness. They recommended among other things simplifying the paying taxes indicator and to exclude information on tax rates from the rankings. It also found that out of the 4 out of 10 questions on firing cost and ease of firing index are not in the spirit of ILO conventions on labour.
The International Trade Union Confederation has criticized the Employing Workers Indicator (EWI) of the Doing Business of eliminating labour regulations and the best rating given to countries that do away with the worker protection legislation and countries who are increasing formal employment get worst rankings. ITUC recommended removal of EWI and other matters from Doing Business along with the tax rate component of Payment Tax Indicator. The Employing Workers Index is no longer being used to calculate the Ease of Doing Business but the report continues to publish data on Employing Workers Index.
Arvind Panagariya had given its flaws and minimal role EDB index plays in informing policymakers had asked the Bank to close down the business of ‘Doing Business’
World Bank comes out with Doing Business report every year from 2004 is one of the flagship knowledge products of World Bank, which measures the burden of selected business regulations and rank the countries. The programs stated objective is to advance the World Bank Groups private sector development agenda and is jointly published with IFC, the private arm of the World Bank. It aims to measure the costs to firms of business regulations and ranks the countries based on 10 indicators.
The influence which is being exerted by the Ease of Doing business becomes clear as it has affected 3188 business related reforms since it started 15 years ago. This year, the report observed that governments in 119 countries carry out 264 reforms to attract investment and become more competitive.
India seems going overboard in changing domestic laws and policies to attain a higher rank in the ease of doing business. There has been a concentrated effort in bringing down regulations in all sectors across various ministries. It seems to be a race to the bottom as to which department and which states reduce regulations. Currently, there are about 400 plus ‘reforms’ identified and notified for different departments to make relevant changes. The Secretary Department of Industrial Policy and Promotion has stated about 122 reforms which the government have already made and another 90 more which will be implemented this year. This includes reduction of the corporate tax rate from 30 to 25% in the medium term.
The country have already done away with various inspection process in factories which will be replaced by self inspections, done away with minimum capital requirements, introduced GST to create a common tax regime and market, brought in Insolvency laws, amended company act, stamp duty and propose to merge 44 existing labor laws in four codes. These include allowing firms employing up to 300 people — against 100 now — to retrench/lay off workers and/or close down without government approval. Eight states including Madhya Pradesh, Rajasthan and Andhra Pradesh have already made the necessary changes to this effect. The central trade unions have opposed the government plan to ease retrenchment norms and restrict trade union membership and have demanded to scrap the reforms.
The Ease of Doing Business Report has become a tool which facilitates reforms in emerging economies without seeing the opposition which was earlier seen when the IFIs tried to influence policy and economy through the structural adjustment policies. World Bank and other institutions with their experience of International Finance Corporation have redirected the strategy to mobilise redirect and unlock trillions of dollars of private resources for development. This capital and investment are now being used to influence counties economic reforms as the country selection will be influenced by the business climate and regulations. Private business uses the Doing Business reports to direct investments in nations which will provide the signal to private business to invest in a project/ sector of a country. The reports like Doing Business report helps in directing the governments the changes the private companies expect in a given economy and thereby exerting their pound of flesh without spilling a drop of blood.