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World Bank Doing Business report:

GS Paper 2

Topics Covered: Important International institutions, agencies and fora, their structure, mandate.

 

Context- What has happened?

The World Bank, in mid-September, announced that it was set to discontinue publishing its Doing Business report.

 

Why?

This announcement came on the back of an independent investigation that, reportedly, found “data irregularities” that prevailed in the 2018 and 2020 reports.

 

What’s the issue?

In August 2020, World Bank paused the publication of Doing Business reports following a number of irregularities were reported regarding changes to the data.

  • The irregularities in Doing Business reports had affected four countries: China; Saudi Arabia; United Arab Emirates; and Azerbaijan.
  • A probe of data irregularities cited “undue pressure” by top bank officials, including then-Chief Executive Kristalina Georgieva, to boost China’s ranking in 2017.
  • This raised ethical matters involving former bank staff and board officials.

 

Why does the report matter?

The World Bank’s annual report matters to several nations, especially developing ones, since it greatly influenced investor decisions by releasing a ranking of economies based on how easy it is to open up, and operate, a business. But while the report was hugely popular among investors, it was heavily criticized by many governments for its methodology that, leaders said, inaccurately captured the realities on the ground.

 

About Doing Business project:

  • It provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
  • Started in 2002, it looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle.
  • It ranks countries on the basis of Distance to Frontier (DTF) score that highlights the gap of an economy with respect to the global best practice.

opening_business

What does the report provide?

Each year, the EoDB rankings mapped whether, and by how much, a country had improved on a number of big and small parameters, such as how long it takes to start a business, or how costly it is to get a construction permit, or how many procedures one has to go through to enforce a contract etc.

 

How reliable are the rankings?

Even before this controversy, it was openly known that there are several gaps in the rankings.

  • Reliability of data: For example, in India, which had registered a massive jump in the last few years, all the data to construct the ranking was taken from just two cities — Mumbai and Delhi. Any ranking based on such a small sample ignored how remarkably the “ease” of doing business varied once one moved away from these two metros.

 

How can the ranking methodology be improved?

Following are the key recommendations made by an external panel review of EoDB methodology:

  1. A substantial methodological shift away from hypothetical case studies and in favour of more data collection from representative samples of “actual” business owners and operators on their de facto experiences of doing business.
  2. Include the government functions that provide essential public goods to the private sector: transport and communications infrastructure, a skilled workforce, law and order, etc.
  3. Do not rank countries on their tax rates. From a societal standpoint, collecting taxes is necessary, and thus lower tax rates are not necessarily better.
  4. Eliminate the indicators “Protecting Minority Shareholders” and “Resolving Insolvency.”
  5. Make the “Contracting with Government” indicator more relevant.
  6. Restore and improve the “Employing Workers” indicator, but do not rank countries based on this information.
  7. Improve the transparency and oversight of Doing Business.

 

InstaLinks:

Prelims Link:

  1. About the Report.
  2. Indicators.
  3. Overview of 2018 and 2020 reports.

Mains Link:

Comment on the concerns associated with the Doing Business report of the World Bank.

Sources: Indian Express.