Explained | The World Bank controversy that killed the Doing Business Report

The Doing Business report outlined the levels of business regulation in 190 economies. It assessed the business climate on 12 broad parameters integral to starting, sustaining and winding down a business. The 2020 report was the 17th in the series of annual studies.

The quantitative indicators ranged from dealing with construction permits, getting electricity, getting credit, protecting minority investors, paying taxes, and trading across borders. These could be compared across 190 economies—from Afghanistan to Zimbabwe—and over time. The study presented a detailed analysis of costs, requirements and procedures that a specific type of private company is subjected to in all countries and provided nations with specific prescriptions on how and when to reform key laws.

Why is it so crucial?

Nations around the world monitored the annual reports since they set the Ease of Doing Business Index for the next year. The index is the formal ranking of nations – from most business-friendly to worst. It is competitive, changes quickly and has in recent years garnered huge media attention. This report card of sorts showed whether nations had improved or degenerated in their efforts to create a more liberal economic ecosystem, at least for the average business.

The growing significance of the index was partially due to rising interest across the developing world from countries including India, South Africa, Indonesia, Nigeria, Brazil and China, which are continuously engaged in seeking more foreign direct investment.

What had been done?

On instructions from former World Bank president Jim Yong Kim and ex-CEO Kristalina Georgieva, the Doing Business team was instructed to re-evaluate China’s data to keep its rank at 78. Internal audits had been triggered in June 2020 by repeated allegations of data manipulation. Law firm WilmerHale had prepared an independent report at the request of the bank’s ethics committee. Both raised concerns about China’s influence at the World Bank.

They found that Kim discussed the report and China’s performance with senior Chinese government officials in September 2017, a serious breach of practice and ethics because the results are never disclosed before the global launch of the report. Also, the then executive director for China met with members of the World Bank’s East Asia and Pacific regional office on September 14 to inform them that if China’s rankings improved, everyone would be “relieved.”

How did it get so bad?

This isn’t the World Bank’s first brush with scandal. In January 2018, Paul Romer, the World Bank’s chief economist, announced that past releases of the index would be corrected and recalculated going back at least four years. Romer apologised to Chile, saying the former director of the group responsible for the index had repeatedly manipulated its methodology, unfairly penalising the country’s rankings during the administration of left-wing President Michelle Bachelet.

Now, after reviewing all the information available to date on Doing Business, including the findings of past reviews, audits, and the final report released by the World Bank, the management decided to discontinue the Doing Business report.

Why does this matter for India?

Since the Narendra Modi government took charge in 2014, it has focused on improving India’s rankings. The government said in multiple fora that its target was to be counted as part of the top 50 club as soon as possible. It also initiated a wide sweep of reforms to continuously improve conditions of doing business on the ground across local, state and national levels.

As a result, India’s rankings improved dramatically over the past five years. In the latest rankings, it rose 14 places to 63rd position in 2019, up from 74th in the previous year. The country was also placed in the list of “economies with the most notable improvement” for the third year in a row. Overall, India’s position jumped from a low 142 in 2014, an unparalleled feat.

The government had also extensively marketed its achievements both domestically and abroad. Continuously invoked at political rallies and TV debates, the term “ease of doing business” had become an inherent part of the political discourse in the country.

Where does the government stand on the issue?

After the controversy broke out, Kaushik Basu, who was World Bank chief economist from October 2012 to October 2016, said that while pressure from governments had always been the case, it had never given in. He said that to India’s credit, both the current and former Indian governments had never put pressure on the World Bank for favourable reviews.

The sudden discrediting of the rankings has brought into question the framework of the report, its intent and the entire process. While the Centre has not yet officially commented on the matter, reports have stated that some officials fear this will discredit India’s overall ease of doing business endeavour.

However, most officials believe it will help in exposing how China bullies multilateral institutions to accommodate its demands. With global opinion on the matter slowly becoming clear, they hope this will lead to more businesses shifting from China to India. India is currently wooing businesses to shift their supply chains from China through a range of incentives