New Methodology Pushed India Up the Ease of Doing Business: Study
The Centre for Global Development (CDG), a US-based think-tank on global policy, debunked India's jump in the World Bank's Ease of Doing Business, stating that the improvement in ranking was due to changes in methodology adopted by the body.
In a study report published on 5 February, the body said that without the changes in the methodology, India's jump in the rankings "looks more modest".
In October, the World Bank released the report in which India was ranked 100th in the Ease of Doing Business, as compared to the previous year's 130th position. Prime Minister Narendra Modi termed it a "historic jump" in rankings, with the government holding several press conferences to reiterate the same.
Finance Minister Arun Jaitley, in one such press conference remarked that the BJP government has replaced the UPA regime's "ease of corruption" with business.
More recently, during the World Economic Summit in Davos, Modi announced the "improvement" in rankings, adding that they proved that "India was open for doing business".
However, according to CDG, the rankings tell a different story.
India's ranking can simply be attributed to the addition of new countries to the list, i.e the sample size, the report said.
Which Methodology Did the CDG Use?
Now instead of dropping the new indicators, the think-tank now used all the indicators but with a different appraoch.
The report says:
Instead of dropping new indicators, we splice the series together whenever there is a methodological innovation. So for instance, when the World Bank changed the underlying indicators in the “ease of getting credit” index in 2014, they kindly reported the score using both methodologies for that year. India scored 81.25 on the old methodology in 2014 and 65 using the new method.
The CDS multiplied India’s credit scores by 1.25 (=81.25/65) for every year after 2014, explaining that there will be no "artificial jump" in India’s credit score.
Whether one ignores the new indicators, or use the consistent methodology, the report says that India's jump looks "much more modest".
Why the Jump Then?
The difference reportedly does not come from a particular index, as scores from both the methods are "not very different".
The big change comes from ranking, not scoring. Because many countries perform similarly on the index, even small discrepancies in the score can produce wild swings in the rankings, which appears to have happened in India’s case – a point Martin Ravallion, former manager of the World Bank’s research department, has pointed out recently as well.
Former chief economist of World Bank Paul Romer’s recent remarks that the institution’s staff made unfair changes in the assessment methodology and that it was “politically manipulated” led the CDS to also examine India’s to examine India’s rise in the ease of doing business rankings.
(With inputs from Centre for Global Investment)