An investigation conducted by the World Bank revealed data irregularities and cited the role of several IMF chiefs in tweaking data in China’s favour
India was on the cusp of improving its ranking further on the World Bank’s “Ease of Doing Business” index. It had instituted a single window system for all investors and businesses to eliminate the filing of multiple applications across ministries and departments. It would allow automatic renewal of licenses without the requirement of visiting any Government office. Sadly, the World Bank suspended the ranking itself due to past data irregularity.
It has come as a big disappointment for India and PM Narendra Modi rightly flagged it in his recent address to the UN General Assembly saying the world institutions had “damaged their credibility”. Credibility was the casualty when the World Bank had to disclose that a number of irregularities were reported regarding changes to the data in its ‘Doing Business’ reports, changes that were “inconsistent with the Doing Business methodology.”
To maintain the integrity and impartiality of data and analysis, the World Bank promised to conduct systematic review and internal audit of the process of data collection and assessment of the controls and to “retrospectively correct the data of countries that were most affected by the irregularities”, if necessary. The countries involved were mainly China, UAE and Saudi Arabia. The sordid affair once again brought to the fore the heft that China has in the international multilateral institutions, of which it is a major contributor.
Ever since they were launched in 2003, the ease of business rankings have been a valuable tool for countries to improve their rankings in order to attract industries and investment. The reports have so far engendered nearly 5,000 regulatory reforms in 190 countries including India, whose ranking went up by 17 notches last year improving its ranking to 63rd position among these countries. India indeed took a giant leap in its ranking which improved from 130 in 2016 to 63 in 2020, for which credit must be given to the transformational reforms undertaken by the present government. The PM’s ambition is to improve its ranking to within the top 50, and the report would have acted as a catalyst in this effort.
An investigation conducted by the World Bank reported data irregularities in the ‘Doing Business’reports and cited the roles of present IMF Chief Kristalina Georgieva and the Bank’s then president Jim Yong Kim, who was then her boss, in tweaking the data in favour of China. China launched a slew of reforms afterit was ranked 84 in2016to free entrepreneurs from red tape, cutting fees and effected other reforms that improved its ranking to 78 in 2017, where it remained in 2018. But then its ranking improved dramatically, from 78 to 46 in 2019 and then to 31 in 2020.
The Bank’s investigation found that the staff involved in the process improperly altered the scores of at the behest of its chief, Jim Yong Kim, a South Korea-born American. Georgieva of course denied the allegations, saying that she only asked bank researchers to triple-check the data. But the investigators found that she and herstaff had explored a change in the bank’s method (by including only one city per country) to orchestrate a better result for China and that the changes that were finally implemented introduced errors into the report. The bank cited “pressure applied by CEO Georgieva and her advisor, Djankov, to make specific changes to China’s data points in an effort to increase its ranking at precisely the same time the country was expected to play a key role in the bank’s capital increase campaign”.
In fact, Simeon Djankov was the economist whose landmark paper, written with three other academics, was the trigger for launching the’ Doing Business’ report in 2003. On the basis of quantitative evidence gathered from 85 countries, the paper had found that countries with stricter entry regulation for business had higher corruption and larger unofficial economies, with poor quality of public or private goods. It also found that countries with more democratic and limited governments had lighter entry regulations, and that heavier entry regulation benefited only politicians and bureaucrats without adding any value to the businesses.
The ‘Doing Business’ ranking is done by a survey conducted through questionnaire to measure the regulations directly affecting businesses. A nation’s ranking depends on 41 sample indicators grouped under 10 sub-indices which include the ease of starting a business, dealing with construction permits, getting permanent electricity connection, registering property, getting credit, protecting minority investors, paying taxes, cross-border trading, etc.
Data are gathered from about 15000 experts like lawyers, accountants, judges, engineers, architects, business people and public officials in the 190 subject countries who have to deal with business regulations in their normal course of work. For 11 economies including India, China, Bangladesh, Brazil, Indonesia, Japan, Nigeria, Pakistan, Russia and the USA, the two largest cities are selected from each, and the score is calculated as the population-weighted average of the scores for these two cities. For India the cities selected are Mumbai and Delhi.
The 2020 report, benchmarked on May 1, 2019, acknowledged 10 economies including China, India and also Pakistan that implemented a total of 59 regulatory reforms in 2018/19 — accounting for one-fifth of all the reforms implemented worldwide. It mentioned the PM’s “Make in India” campaign focused on attracting foreign investment, boosting the private sector, especially manufacturing and improving the country’s overall competitiveness. It acknowledged that both India and China had adopted the ‘Doing Business’ indicators as a “core component of their reform strategies” and demonstrated tangible progress in the reforms.
One reason why India’s ranking improved was because of creating better awareness among respondents and involving top officials like partners in accounting firms in the process of responding to survey questionnaires — something that was routinely delegated to officials much lower in the hierarchy who were not properly equipped to appreciate their significance and responded to the questions rather mechanically. But this alone would not have worked without accompanying reforms in the concerned topics. For highlighting the countries that implemented substantial reforms, the report first selects those countries that implemented substantial reforms in respect of at least three of the 10 topics. For the 2020 report, 42 economies qualified in this, including India, China and Pakistan. The areas in which India showed improvement included the ease in starting business, dealing with construction permits, trading across borders and in resolving insolvency. Since then, the government has been focussing in the areas that remained unaddressed till then to remove the regulatory bottlenecks to make the rules simpler and investor-friendly. Corporate taxes were reduced substantially in September 2019 and procedures made simpler, and improvements were made in many other areas including the single window clearance system which is now operational.
As a result of all this, India expected another upgrade in the current year. Unfortunately, that was when the crisis erupted leading to discontinuance of the report. Given its potential to effect reforms, an objective and unbiased Doing Business ranking will help many leaders to motivate their bureaucracy and legal institutions to implement reforms. It is hoped that the rankings will reappear in the near future after necessary revisions in methodology and with suitable oversight mechanisms involving NGOs, think tanks and academia to check errors.
(The writer is former Director-General, Office of the Comptroller & Auditor General of India and currently, Professor, Arun Jaitley National Institute of Financial Management. The views expressed are personal.)
