How Business Rankings Distort Policy Priorities And Public Perception
Construction of indices are a tricky technique in economics and statistics. Indices seek to provide a way to aggregate diverse attributes. The weights and choice of dimensions tend to override the objective methods of comparison. There are of course “fair” ways of aggregating two attributes, but there is a high possibility of bias influencing results. Certainly, the greatest strength of an index is that it simplifies complex phenomena into comparable numbers.
- This very simplicity makes ranking popular and hence powerful, making it a dangerous and often misguided tool for policy formulation. While not all stakeholders buy into such rankings, these are widely publicised and become impossible to ignore.
- While discussions around its methodology hardly get much prominence, the often meaningless movement of ranks gain undue public attention.
- What is more troubling is when such rankings incentivise governments to tweak their policies in order to go up the ranks. In fact, the Indian government in its output–outcome framework document for 2017–18 for industrial policy and promotion states as its first goal, the desire to reach the 90th rank in the EDB index in 2017–18 and 30th rank by 2020.
India Business Ranking World Bank
- India, as has been widely reported, now ranks 100, up from 130 last year. Now, for instance, India ranks 29th in the world by Doing Business’s “getting credit” index leading to the impression that India is doing quite well on the access to credit front, contrary to many enterprise survey and research findings.
- This index actually measures the “strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending,” and not “access to credit.” Review reports of Doing Business have also noted that it uses misleading terminology that has a far-reaching influence on public perceptions of economies.
- The terms used suggest that the indices provide a comprehensive measure of business environment, while it only looks at on-paper regulations. The desire to go up the ranks tends to lead governments to change policy in favour of what drives the index, which need not be what their people or economy require.
Ease Of Doing Business India Ranking
- The perception that a better ranking is positively correlated with foreign direct investment is another problematic consequence of these rankings.
- Importantly, this one-size-fits-all approach to the “ease of doing business” ignores the diverse contexts of development in different countries. If countries fulfil these conditions, disregarding their own contexts and paths of development, they climb up the ranks.
- This is akin to a world cup football tournament that lays out not only a common set of rules to be played by, but also rewards one strategy over others! Though Doing Business avowedly wants to inform policy, and not prescribe it, nor outline a normative position, its rankings do precisely that.
- The newest controversy should prompt the World Bank to have another look and to do away with the EDB index altogether.