Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

The end of the doing business rankings

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Ease of Doing Business Report

Mains level : Read the attached story

The World Bank Group has scrapped its flagship publication, the ‘Doing Business’ report.

Doing Business Report

  • This report publishes the influential annual ranking of countries on the Ease of Doing Business (EDB) index.
  • It ranks countries by the simplicity of rules framed for setting up and conducting businesses.

Utility of the index

The World Bank’s decision has wide ramifications, as the index serves varied purposes.

  • Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments. National leaders often set EDB rank targets.
  • This helps them measure domestic policies against global “best practices” and browbeat domestic critics.
  • India, for instance, wanted its administration to ensure that India breaks into the top 50 ranks of the EDB index.
  • Some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion (as appears to be China’s case).

Issues with the credibility of the report

  • The Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
  • It is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s rank by doctoring the underlying data.
  • Similarly, tensions were also reportedly brought to bear in the case of Saudi Arabia’s rank, among others.

EDB index rank vs economic outcomes

  • There is a disconnect between the stellar rise in EDB index rank and economic outcomes.
  • The theory underlying the EDB index could be suspect, the measurement and data could be faulty, or both.
  • For example, China’s phenomenal economic success, especially its agricultural performance (after the reforms in 1978), is perhaps the most unmistakable evidence demonstrating that lack of clarity of property rights may not be the binding constraint in a market economy.
  • What matters is economic incentives.
  • Measuring regulatory functions underlying the index could be tricky and subjective and possibly politically motivated as well, as the controversies surrounding the index seem to suggest.

EODB in India: At what cost

Ans. Weakening labour regulations

  • Closer home, India has weaponised the mandate to improve the rank in the EDB index to whittle down labour laws and their enforcement and bring them close to the free-market ideal of ‘hire and fire’.
  • Most States have emulated Maharashtra’s lead of administrative fiat, which renders labour laws toothless by dismantling official labour inspection systems and allowing employers to file self-regulation reports.
  • The government has farmed out critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies.
  • The Labour Department’s inspection is now not mandated; it is optional only by prior intimation to employers.

Implications of such moves

  • Such abdication of the government’s responsibility towards workers has reportedly affected industrial relations.
  • The workers’ strike at Wistron’s iPhone assembly factory in Karnataka last year is an example.
  • Further, severe industrial accidents are rising, damaging life and productive industrial assets.

Why did World Bank scrap the index?

  • Investigations into “data irregularities” in preparing the EDB index, as brought out by the independent agency, seems to confirm many shortcomings repeatedly brought to light for years now.
  • The index appears motivated to support the free-market ideal.
  • It is dressed up under scientific garb and is underpinned by seemingly objective methods and data collection.
  • Strong leaders (and motivated officials) seem to have used their position to manipulate the index to suit their political and ideological ends.

Conclusion

  • India claimed the success of its Make in India initiative by relying on its ranking on the EDB index without tangible evidence.
  • Handing over law enforcement to employers by self-reporting compliance seems to have increased industrial unrest and accidents.
  • It perhaps calls for honest soul-searching as to what havoc a questionable benchmark can wreak.

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