Tuesday, November 28, 2017

Pursuit of Rankings: Decoding the Mirage

Rahul Sapkal and Swati Shanker

There are things known and there are things unknown, and in between are the doors of perception. This very idea of perception i.e., ‘perception of improved economy and ease of doing business’ is implicit in World Bank Group’s Doing Business Report 2018 (“Report”) and India’s significant jump from 130th (in 2016) to 100th (in 2017).  As per the Report India has introduced substantive reforms on 8 out of 10 parameters namely, starting a business, dealing with construction permits, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. While the government is busy patting its own back and scoring brownie points for the same, the ground realties present a different narrative. The Report cannot be a true indicator of India’s positive performance as the methodology adopted therein is flawed on majorly two counts. Firstly, it considers only Delhi and Mumbai as the benchmark of developments and secondly, it does not take into account effects of some of the recent major economic reforms viz demonetization and GST reforms.

Ranking vs. Realties
As per the Report substantive reforms have been undertaken by the Indian government in the realm of starting a business. However, the ground reality lies in the fact that starting a business in India still remains a cumbersome process wherein atleast 12 procedures have to be complied with as opposed to 5 in high-income countries.  The foregoing statement can be substantiated in light of the fact that as per the Report the time taken for starting a business in India has increased from previous year’s 28.5 days to 29.8 days thereby worsening its ranking in the category to 156 from 155 last year.

Further, enforcement of contract is yet another important ignored aspect. In India enforcement of contracts takes around 4 years as opposed to merely 165 days in Singapore and 3 years in other South Asian Jurisdictions including India’s neighbours.  

Though India witnessed an improvement by 4 positions in obtaining construction permits, however, obtaining the same still remains a tedious process and requires substantial time. On an average, the time taken to obtain construction permit in Delhi and Mumbai is 157.5 days and 128.5 days respectively while the number of procedures to be complied in Mumbai is 37 and in Delhi is 24 which is way above 12.5 as required in developed countries.

Further, the introduction of the Bankruptcy and Insolvency Code, 2016 (“Code”) has been perceived by the Report as a major overhaul of the insolvency regime, thereby, projecting India as a preferred investment destination. However, the Code is marred by procedural ambiguities and lack of proper implementation, thereby raising serious concerns on the reforms undertaken in the Code and their feasibility which is constantly under challenge in various high courts of the country.

Game of Rankings: To Pursue or Retreat
In this globalized era where the market is information oriented the ranking as highlighted in the Report plays a major role in improving the economy of a country by attracting foreign investments thereby increasing production and creating job opportunities. This also acts as an incentive for government to undertake reforms in order to improve their ranking and hence fit into the neo-liberal market regime. However, such ranking should not be regarded as the sole determinant of an economy and an integrated approach should be preferred in drawing conclusions. This can be justified through the fact that India ranks 143rd in Heritage Foundation’s Index of Economic Freedom and 79th in Transparency International’s Corruption Perceptions Index which proves that the Report does not portray a rosy picture as is constantly being painted by the Indian government.

Further, the fact that the Report is based on the data collected from Delhi and Mumbai alone, it cannot be generalized for whole of India and hence rather than India’s ease of doing business ranking it represents ease of doing business rankings of Delhi and Mumbai only. Also, since the Report has discarded the effect of demonetization and GST completely, the ranking seems far from reality.  The ranking currently is more favorable to further the political agenda rather than furthering the cause of businesses and public. Moreover, there is an eminent need by the government to undertake study of the entire country’s economy and introduce reforms accordingly rather than solely relying on the scrutiny of doing business in the metros and flashing such ranking in the media. DIPP’s proposed initiative of conducting first public perception surveys across the country to evaluate state wise reforms related to ease of doing business and allocation of state-wise ranking seems to be a welcoming step.

Thus, one should not be enslaved by the perception promulgated by the Report per se rather conscious perception would be a better way of analyzing and addressing the issue at hand.

 Why should ranking systems matter generally?
The index clearly sparks media and policy attention. Because of the authority and resources of the World Bank, the rankings have the potential to be accepted as an indicator of the true underlying business environment. As such, they have the potential   to define problems, set standards, reward compliant behavior; in short, they become an implicit yet powerful governance tool.  By ranking states according to specific criteria, actors attempt to define goals and set states in competition with one another to achieve them. Some states respond by devoting significant resources to improving their scores. Rwanda, for example, has formed a bureaucracy to manage their Global Ranking Index profile. Similarly, India is in the global race to push forward the hard core procedural reform that fits the expectation of Neo-liberal market reforms.  Both the Bank and commentators have made relatively strong claims about the influence of the rankings, but there is any credible evidence produced so far to attest those claims. In the context of labour regulation debate, despite removing the labour market rigidities and allowing flexibility Indian economy are yet to show any positive impact of labour reform. Rather worst, on numerous indicators reforms are failing to provide decent livelihood, causing serious problem of welfare loss. In recent paper, Sapkal and Shyam Sundar (2017), those states that have reformed labour laws in favour employer are hurting the working class widely and forcing them to trap into the world of precariarity.

If one would believe that these indexes actually affect the policies and its process, then indeed  it is merely influencing the domestic politics and not the welfare activity of the state.

Rahul Sapkal is Assistant Professor of Economics at Maharashtra National Law University, Mumbai Email: rahul.sapkal86@gmail.com

Swati Shanker is Graduate Student and Lawyer (Corporate & Commercial Laws), Maharashtra National Law University, Mumbai, Email: swati.shanker@yahoo.in

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