What is Ease of Business rankings and why do they matter to countries like India?

The Recently Published Ease of Business Rankings

The news that India jumped 30 places in the Ease of Business Rankings as published by the World Bank and which covers 190 countries worldwide was met with jubilation and chest thumping by the Indian Government, which promptly announced that the Indian Economy was on a path to recovery and the recent criticism was not based on facts.

Indeed, the government that was reeling under severe criticism over Demonetization and the GST (Goods and Services Tax) which were held up as reasons for the slowdown wasted no time in celebrating the fact that India was now a more business friendly market for Western Investors.

While the fact that among 190 countries, India was still at 100 and the celebration was only about moving 30 places was pointed out by the Opposition, this was countered as being the legacy problem of the previous government under which India slid to the bottom of the rankings table.

Further, the fact that unlike other surveys and rankings conducted by private agencies, this ranking report was published by the World Bank and covered all the economies in the world was also highlighted.

Why Do the Ease of Business Rankings Matter to Emerging Markets such as India?

So, what is the Ease of Business Rankings and why do they matter to developing countries such as India? Let us answer the second part of the above question first.

To start with, International Investors base their investment decisions on a wide variety of parameters that include such rankings, their own feedback from the ground, the behavior of other investors, and most importantly, real time research by reputed think tanks and other institutions.

Thus, the reports such as the World Bank Sponsored Ease of Business Rankings do matter to countries such as India since investment decisions are made by investors based on such reports.

Moreover, investments and the behavior of investors is also based on perceptions as much as they are based on data driven parameters and hence, not only must a developing economy such as India register high growth rates (based on official growth rates and unofficial estimates), they must also be perceived as being investor friendly.

So, reports such as the Ease of Business Rankings are as much about perceptions as they are about ground realities. Indeed, for investors who do not have a feel of the ground realities, such reports help them be informed of the potential and the actual attractiveness of emerging and developing markets such as India.

What is the Ease of Doing Business Rankings?

Turning to the first part of the question which is what is the Ease of Business Rankings? They represent surveys covering a wide array of parameters such as how soon a new venture can be incorporated, how easy it is to get approvals from the government, how smooth is the land acquisition process, how difficult is it to fire workers, and above all, a very bottom up as well as top down approach to rank countries based on both macro level policies as well as micro level on the ground ease with which one can transact business.

Indeed, as the term Ease of Business implies, the rankings and the reports are based on a range of parameters that include the impact of corruption which is clearly a deterrent for many investors seeking to invest in countries such as India, as well as the ecosystem support in terms of local infrastructure and the availability of talent.

Thus, such rankings help investor in determining how frictions free it is to open a new business as well as transact business. Further, the fact that this ranking also covers corruption and other business killers means that investors do look forward to such rankings to base their investment decisions.

This is the reason why such reports are eagerly anticipated and once they are published, they are often held up as proof of maturity of the market as well as the economy being business friendly.

Why such Rankings are Important?

Moreover, the reason why The Ease of Doing Business Ranking has become important in recent years is that the present government had made it a campaign issue in the previous elections wherein they had promised that once voted to power, they would ensure that India became a more business and investor friendly destination.

Thus, given all these factors at work, one can understand the glee that this recently published report evoked among the policymakers as well as some economists since it implies that India is on the right track to becoming a more open and liberal economy.

Miles to Go

Having said that, we must add a note of caution in that India still has a lot of distance to cover before it can well and truly be said to have joined the club of nations where it is indeed easy to do business.

For instance, some of the parameters such as rigid local laws and the difficulty of land acquisition, as well as the problematic aspect of hiring and firing workers were all cited as deterrents to investors in the report.

This must serve as a wakeup call to the policymakers to do something about these factors and that too in a quick manner. In addition, the report also cautioned that while Big Ticket corruption has come down, the on the ground realities have not changed much.

Thus, to conclude while celebration is indeed welcome considering the start that has been made, there are miles to go and much ground to cover before India becomes a truly business friendly economy and a market where investors find it easy to do business.