Don’t celebrate this century just yet

India’s ‘Doing-Business’ quotient is on a tear.

Published: 02nd November 2017 04:00 AM  |   Last Updated: 02nd November 2017 02:06 AM   |  A+A-

India’s ‘Doing-Business’ quotient is on a tear. On Tuesday, Asia’s third largest economy scored a perfect century jumping up 30 spots in the World Bank’s Ease of Doing Business ranking. Last year, it grew by a whisker to 130. Coming amid the sombre private investment climate, and slowdown blues, the ranking appears to be the most tangible of wildcards ratifying the government’s will to pursue structural changes as against a nudge-approach to reforms.

While critics gave a polite golf clap, one can hear the drumbeat in select quarters, but it’s folly to presume the ranking alone will bring home untold treasures.

Unarguably, it leads to higher FDI. For instance, India saw foreign inflows touching an incremental `1 lakh crore in five years when the rank improved by 34 places. It also helps the private sector, which is responsible for an estimated 90 per cent of employment in developing economies.

But by the World Bank’s own admission, the indicators do not include all factors like macroeconomic stability, financial systems, the incidence of bribery and corruption, the quality of the labour force relevant for business decisions or a country’s competitiveness. The measure indicates where it’s easier to do business and where firms have a chance to survive, but not where they can exit with ease. The Chakravyuha challenge, as underscored by Chief Economic Advisor Arvind Subramanian, is an area that needs urgent work.

This ranking is no doubt an achievement but doesn’t warrant a celebration, just yet. For one, the ranking focuses only on two cities—Delhi and Mumbai—reducing the representativeness of data in India that has diverse differences across locations.

It pays attention to the formal sector, and ignores the informal economy, where India has a strong presence. Moreover, lesser-known countries like Macedonia, Latvia and Lithuania are among the top-20 for implementing the highest number of reforms. The latest ranking is a useful starting point, but India needs to warm up to further reforms and find a new vein
of growth.

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