Ease of doing business rankings: Why World Bank should take note of Maharashtra, Delhi missing from top 10 in DIPP's index

Two southern states, Andhra Pradesh (AP) followed by Telangana, topped the ease of doing business index for the 2016-17 financial year. According to the rankings published by the Department of Industrial Policy & Promotion (DIPP), which is under the commerce and industry ministry, AP, Telangana and Haryana finished on the podium with scores of 98.42 percent, 98.33 percent and 98.07 percent respectively. Jharkhand, Gujarat, Chhattisgarh, Madhya Pradesh (MP), Karnataka, Rajasthan and West Bengal finished in the top 10.

The ease of doing business in a country or province, as the title indicates, refers to how friendly a place can be to somebody looking to set up a shop or a factory.

To assess this, the parameters used by the DIPP are the level of implementation of reform in the areas of registering property, land availability and allotment, the single window system, access to information etc. It is on the basis of these factors that states are given an overall score and ranking.

The initiative is laudable given that it offers an indicative list to prospective investors and entrepreneurs, both foreign and domestic, targeting India. Besides, this creates a healthy competition among states, pushing them to  work on areas such as expediting approvals to set up businesses, enacting land and labour reforms, all with an aim to get higher on the list and improve bargaining capacity when it comes to attracting big-ticket investments.

Representational image. Reuters

Representational image. Reuters

Having said that, there is one aspect in the DIPP's ease of doing business index that stands out upon close inspection — the absence of Maharashtra and Delhi in the top 10 rankings and that warrants an examination of methodologies.

The two cities the World Bank (WB) surveys annually to arrive at its 'Doing Business' rankings are in the abovementioned states - Mumbai and New Delhi. At the last reading, the WB said India had leapfrogged to enter the top 100 club, moving up 30 ranks. Of course, the WB's methodology to assess the ease of doing business is different from India’s ranking of its states.

The improvement in World Bank rankings reflected certain important areas such as paying taxes (to 118 from 172 last year), getting credit (to 29 from 44) and bankruptcy proceedings (to 103 from 136). Of the 10 indicators considered, India improved in eight, including the aforementioned. This helped push the overall rankings by 30 notches.

But, regardless of a difference in criteria, both surveys aim to gauge the ease of doing business and here, the choice of the WB's samples needs a closer look in the light of the Indian government’s latest rankings for states for the same objective.

Going by Tuesday's DIPP ease of doing business list, Maharashtra figured at the 13th position with a 92.71 percent score and Delhi at 23rd  with a score of 31.60 percent. Why is this surprising? To perform in the WB reading, the government moved to improve key performance parameters (largely same in both readings) in the two cities in consultation with WB officials.

As mentioned before, the improvement presumably helped India boost its position significantly in the WB's Doing Business index. But, despite this supposed marked improvement, the two cities or the states they represent, having helped India jump 30 ranks, do not even qualify to be in the top ten ranks in the DIPP's index.

That makes a compelling case for an argument about whether the World Bank is looking at the wrong places to analyse India’s ease of doing business progress.

In other words, one can argue that had the WB considered a wider sample to judge a country as big as India for its doing business survey, India should have moved up even higher in the world list and by a big margin.

The exclusion of the capital and the financial capital or the states they represent from the top 10 in India’s ease of doing business index should, ideally, prompt the WB to revisit the methodology it uses to select samples while ranking major economies.

Mumbai and Delhi may not be the best samples to judge India’s ease of doing business progress, as the country’s own survey indicates.

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Updated Date: Jul 11, 2018 16:53:08 IST

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