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Recalculating ease of doing business
Context:
Recently, the World Bank announced that it would revise the methodology it uses to calculate the ease of doing business index.
What is the controversy?
- This move that is expected to affect the rankings of countries in the last four years.
- The index ranks countries based on how welcoming they are to businesses, as measured by criteria like the number of days it takes to start a business or obtain a licence.
- The decision to revise the methodology comes after the Bank’s chief economist Paul Romer raised concerns that the rankings could have been influenced by politics.
Why is it significant?
- The ease of doing business index has become a popular tool tracked by governments trying to show the world that they offer a favourable investment climate for private businessmen.
What are the other issues?
- It limits its sample size to just a few major cities, thus projecting an imperfect picture of overall business conditions.
- The bank is right to measure a country’s business environment based on written legal rules rather than investigating the actual ground conditions in which businesses operate.
Ease of doing business index:
- The ease of doing business index is an index created by Simeon Djankov at the World Bank Group.
- A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm.
- The World Bank included the “post-filing index” criteria for the first time in its 2017 Doing Business report under the “Paying Taxes” head.
- This restricted India’s improvement in ranking to just one place—to 130 out of 190 countries—despite a slew of reforms undertaken by the government.
India’s ranking:
- India came in at 100th place (out of 190) in the World Bank’s Ease of Doing Business Report 2018.