Within three years, prime minister Narendra Modi wants India to be among the top 30 countries in the World Bank’s influential Doing Business index, which ranks countries on the ease of starting and running businesses.
It is a rather ambitious goal, but the country seems to be inching towards it. In this year’s Doing Business index, India has moved 12 places up and now ranks 130 out of 189 countries.
The obsession with this ranking, however, may mean very little for those actually doing business in India.
A recent study by World Bank economist Mary Hallward-Driemeier and Harvard University economist Lant Pritchett has pointed out that the World Bank’s Doing Business survey does not reflect the real on-ground experiences of businesses in developing countries. The survey is the foundation for generating the Doing Business index.
Instead, Hallward-Driemeier and Pritchett argue that the Doing Business survey covers regulations and laws in countries without taking into account what companies actually experience.
Ground reality is different
The economists compared the results of the Doing Business survey to the Enterprise Survey, which is also conducted by the World Bank.
The Doing Business survey asks professionals, including lawyers and accountants, about the time and cost required by a company to comply with regulations in a country. The Enterprise Survey, on the other land, collects information on issues like access to finance, corruption, infrastructure, crime, and competition by interviewing top managers and business owners.
The comparison of the two surveys showed “almost zero correlation”, the economists said.
For instance, many companies in the Enterprise Survey reported longer times in starting a business than what was reported by the Doing Business survey.
“The Doing Business project surveys experts concerning the legally required time and costs of regulatory compliance for various aspects of private enterprise… Overall, we find that the single numerical estimate of legally required time for firms to complete certain legal and regulatory processes provided by the Doing Business survey does not summarise even modestly well the experience of firms as reported by the Enterprise Survey,” they explained in the study.
In an interview to the Wall Street Journal in August, Pritchett said that a jump in the Doing Business ranking may not mean much for a developing nation.
“The pretence that Doing Business measures the real rules, and that if we just modestly improve these Doing Business indicators, they would somehow become the reality of what the rules are and how business is really done—I think that’s a very dangerous fiction.”