Don’t Compare Ease To Business Rank With Other Years, But Focus On The Score: World Bank
November 3rd, 2017
India jumped 30 places to reach 100th ranking in the recent Ease of Doing Business Report by the World Bank. This incident has had its fair share of attention as it has grabbed the attention of all media houses and has been an instrument of propaganda for several political parties. The jump was also hailed by our Hon’ble PM Narendra Modi.
Finance Minister, Arun Jaitley also praised the jump saying that this is the highest jump clearly done by any country in the Ease of Doing Business rankings. World Bank, on the other hand, discourages previous year comparisons. So is it really the best jump ever, as our ministers proclaim?
What are the rankings and what are the parameters
According to the World Bank Ease Of Doing Business, economies are ranked on their ease of doing business, from 1-190 in the latest report. A high ease of doing business ranking refers to how much the regulatory environment is conducive to the starting and functioning of a business in the country. The 2018 rankings benchmark the economies to June 2017, said a report by the Factly.
2018 rankings had 190 countries which were benchmarked along 11 set of indicators. The first rankings were published in 2004 and it included only 5 parameters or indicators and ranked a total of 133 countries. A few example of indicators were starting a business, dealing with construction permits, getting electricity, protecting minority investors and paying taxes.
Resolving insolvency and labour market regulation are also among the 11 set of indicators that are taken into consideration while framing the rankings in the report. The World Bank suggests focusing on the Distance To Frontier (DTF) score which is calculated as a culmination of how each economy performs on all the indicators.
This methodology of ranking countries has been overhauled to a great deal over the past couple of years. This ranking shows how one country’s regulatory environment is more conducive in relation to other economies. The DTF score shows how much the regulatory environment for the local businesses has changed over time in absolute terms.
Rankings and their relativity
The doing business (DB) ranking has been calculated while taking two Indian cities in consideration, Delhi and Mumbai namely. DB data is based on data from 2 June 2016 to 1 June 2017. Indira Chand, the Senior Communications Officer at the World Bank’s Global Indicators Group, says a country’s rankings are not comparable over time. The rankings are relative, subject to the performance of other countries. The methodology has been through several expansions over the last couple of years as well.
“For comparable data, we recommend you that you use the DTF scores which are an absolute measure of progress by a country. The rankings, on the other hand, are relative, and hence subject to reform actions taken up by other countries,” she said, according to a report by the Boom Live. Thus DTF 2016-2018 score can only be compared.
How well has India fared?
India’s DTF score in 2018 is 60.76 which means that India is around 40 percentage points away from the frontier. New Zealand, this year has ranked 1st with a DTF score of 86.55, closely followed by Singapore with 84.57. India’s DTF score improved by 4.71 percentage points in DB 2018 from 56.05 in DB 2017.
India also was ranked among the top ‘improves’ this year with having implementing reforms in 8 out of 10 years in a single year. India’s performance has been commendable over the last 15 years, with 27 reforms being implemented, thereby highest in South Asia. Sri Lanka closely followed India with 22 reforms and Pakistan has implemented 19 reforms in the last 15 years.
Paying Tax and Getting Credit has been two indicators where the country has performed really well.
Not a representative of the whole country
This data, unfortunately, does not represent the whole country. It is only based on data collected in Mumbai and Delhi. Doing Business collects data from the largest business city of an economy, however, in case of cities with a population higher than 100 million, the second biggest city is also included. DB also collects Sub-National data (data of other cities). In India, Sub-National level data available is that of 2009.