25th October 2020

Confidant Classes

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Doing Business Index controversy

Recently, World Bank has decided to stop publishing its Doing Business report due to a series of irregularities regarding changes in data from previous reports.

The World Bank has stopped the publication of its report “Doing Business” due to statistical irregularities. This gives us an opportunity to examine this flawed survey.

  • The index estimates the cost to businesses of regulation in all areas, including processing building permits and paying taxes. But the rankings encourage countries to compete, even lowering vital health and environmental regulations.
  • In fact, erratic procedures and delays hamper business in India and simplifying procedures brings financial benefits. But total deregulation triggers a race to the bottom that the world cannot afford during a climate and health crisis.
  • The World Bank’s independent evaluation group (2008) and an independent external group (2013) together identified 15 gaps in the index, many of which remain relevant.

Curious scores

Among the weaknesses is the lack of transparency and objectivity in the score. For example, questions have been raised about Russia’s jump in the ranking from 120 out of 190 countries in 2012 to 62 in 2015.

  • As a de jure criterion, the survey excludes the informal sector. Interestingly, the low scores of China and India were associated with strong FDI growth.
  • The biggest drawback is that the index avoids the social costs of deregulating pollution, worker safety, and health risks.
  • China and India significantly improved their scores in 2019 and 2020, although the world’s top and third-party emitters have significantly increased their carbon effluent.
  • Another 2020 index ranked China at 120 and India at 168, out of 180 countries for the environment. Loose commercial guarantees produce tragic results.
  • The 2013 collapse of the Rana Plaza garment factory in Bangladesh, the second-deadliest industrial accident after the gas leak at Union Carbide, Bhopal, was the result of reckless regulation of the factory.
  • Brazil, India and the United States have lowered environmental standards. These standards were further weakened during COVID-19. The reversal of effluent benchmarks for power plants and automobiles and the rise of fossil fuels in the United States has been impressive.
  • However, this did not affect their ranking in the Doing Business survey (six in 2020). India’s Parliament is considering an environmental impact study, the draft of which is riddled with dilutions of environmental law.
  • Several indicators of the Doing Business survey assume that less regulation is better, but ignore the impact on health, the environment, the protection of workers and the right to information.
  • The 2008 global financial crisis was due to very weak banking supervision. Climate change is driven by lax emission controls in China, the United States, etc.
  • The center and states of India must take into account the welfare of workers when considering changes in labor laws, especially during the pandemic.
  • Global lessons warn India about the dangers of watering down the Right to Information Act 2005. The survey assumes that the lowest tax rates are the best, thus neglecting individual tax requirements.
  • For example, the Maldives and Qatar have performed well in paying taxes, but they are not role models for India as most of their income is based on individual assets.
  • The survey supports lighter rules and taxes to encourage the shift from the informal to the formal sector. But formalization per se may not create jobs, and removing barriers to starting a business will not necessarily develop the formal economy in the face of severe capital shortages and a poor workforce.
  • The survey ignores infrastructure, entrepreneurship and competition indicators. It is true that an overload with too many variables makes it difficult to manage a survey.
  • But when a criterion does not take into account pollution reduction or labor standards, a revision is necessary. Putting the Doing Business project on hold gives the World Bank the opportunity to combine the liberalization of unnecessary barriers with the strengthening of necessary regulations.
  • A renewed indicator should reward, not penalize, investments in skills, worker health and safety, clean activities and climate resilience.
  • The Board of Directors of the World Bank has been informed of the situation, as have the authorities of the countries most affected by the data irregularities,
  • Noting that the integrity and fairness of data and analysis are paramount, the release says that the multilateral financial institution will conduct a systematic review and assessment of data changes that have occurred after the institutional data review process for the latest five Doing Business reports.
  • According to the 2020 Doing Business report, India climbed 14 places to 63rd place in the ease of doing business rankings. India has improved its ranking by 79 positions in five years (2014-19).
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