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.

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

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