By Mohan Guruswamy
There isn’t much change in the real business climate and India’s performance on development indices is abysmal
The Modi government has gone into a self-congratulatory mode over the World Bank’s latest Ease of Doing Business rankings.
Higher rankings on the index, signified by a low numerical value, indicate better and usually simpler regulations for businesses and stronger protections for property rights. The Ease of Doing Business index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation’s proximity to large markets, quality of infrastructure, inflation, or crime.
A nation’s ranking on the index is based on the average of 10 sub-indices: These relate to time taken for starting a business, getting building sanctions but not buying the land; getting a power connection; registering purchase of property; getting credit sanctioned; protection of investors; taxation; foreign trade; enforcement of contracts; filing for insolvency or forcing bankruptcy. All these steps should be almost automatic, but they are not.
Each represents a rent-collection point, which, in our business climate, requires some greasing of palms to move forward. Our problem is not that we don’t have well worn procedural tracks. The problem is the prevalence of extortion, even for routine and normal transactions. If one is is willing to pay the rent collectors, the ease of doing business shoots up.
In the real India, it takes 123 days to get a building plan sanctioned and 1445 days to get a judicial verdict on a civil dispute. But declared reforms on insolvency, getting a company registration or SEBI regulations to protect shareholders have boosted our ranking without much real change in actual business climate.
No Indian business can start or function without enabling agents or consultants. A large part of the wealth of South Delhi is due to this activity. It’s the same in state capitals and district headquarters. Business consultancy masks many activities. The biggest among them is the business of liaising, and this is increasingly a part of the services corporate lawyers and chartered accountants offer. Very little has changed here.
Therefore, to judge India’s business climate by the East of Doing Business index is like judging a policeman for the cleanliness and crispness of his uniform rather than his proclivity to corruption and professional skills. But as a nation, we are good at dressing up for the occasion.
There are indexes that are more relevant and useful in setting national priorities. In October, he International Food Policy Research Institute released the Global Hunger Index and India’s ranking on that was nothing to cheer about. The Institute’s report said: “India is ranked 100th out of 119 countries, and has the third-highest score in all of Asia – only Afghanistan and Pakistan are ranked worse.” The report further went on to say: “At 31.4, India’s 2017 GHI [Global Hunger Index] score is at the high end of the ‘serious’ category, and is one of the main factors pushing South Asia to the category of worst performing region on the GHI this year, followed closely by Africa south of the Sahara.”
On most other development indices too, India fares poorly In the world’s Human Development Index, India ranks at 131 out of 168 countries on the list, and is in the company of all other South Asian countries except Sri Lanka (73). Sri Lanka is better placed than even China, which is ranked 90. Only Kerala can be compared to Sri Lanka.
The Human Development Index of Kerala is India’s highest at 0.790, which would place it ahead of China, while at the other end of the spectrum is Chhattisgarh. with a measure of 0.358. This places it alongside the Central African country Chad, one of the world’s poorest and most backward countries.
The country’s abysmal track record at ensuring basic levels of nutrition is the greatest contributor to its poverty as measured by the new international Multi-dimensional Poverty Index. About 645 million people (55% of India’s population) are poor, according to this composite indicator made up of ten markers of education, health and standard of living achievement levels.
The data also shows that even in states generally perceived as prosperous, such as Haryana, Gujarat and Karnataka, more than 40% of the population is poor by the new composite measure, while Kerala is the only state in which the poor constitute less than 20%. The Multi-dimensional Poverty Index measures both the incidence of poverty and its intensity. A person is defined as poor if he or she is deprived on at least 3 of the 10 indicators. By this definition, 55% of India was poor, close to double India’s much-criticised official poverty figure. Almost 20% of Indians are deprived on 6 of the 10 indicators.
This form of analysis gives us a set of measures that try to objectively lay a premise for performance. There are other evaluation yardsticks favoured by somewhat self-serving NGOs like the World Economic Forum and trade unions like the Confederation of Indian Industry, FICCI and Assocham. The most popular one is the index of Economic Freedom. This index is the lesser-known big brother of the World Bank’s Ease of Doing Business.
What is Economic Freedom?
The notion of “Economic Freedom” traces its origins to a series of seminars between 1986-’94 sponsored by the Fraser Institute of Canada and hosted by Milton and Rose Friedman. Milton Friedman is a Nobel Prize winner in economics and his brand of economics stands at the most rightward fringe of the spectrum. His policy preferences have been criticised by a galaxy of economists, including John Galbraith and Amartya Sen, as insensitive to people
The annual Economic Freedom of the World report ranks countries on their level of economic freedom. They had India at 111 along with the Bangladesh, Nepal, Iran and Pakistan, and way below countries with few real freedoms like the United Arab Emirates (11), Kuwait (19), Oman (20), Jordan (23) and El Salvador (56). Thus, while their index considers Saudi Arabia to be mostly free, it considers India to be mostly unfree, like China!
Economic Freedom is not about good government. It is not even about economic achievements. It is about least government and appearing business-friendly. This is the index that Bibek Debroy, then employed at the Rajiv Gandhi Foundation headed by Sonia Gandhi, used to give Gujarat the first place in the development sweepstakes. Modi went to town with full-page advertisements, stressing that it was a Rajiv Gandhi Foundation study. At that time I had written that this was the kind of self-goal the Congress excels in.
Debroy was soon let go of, but this is what took him to the Niti Aayog and now to the Prime Minister’s Economic Advisory Committee. India’s tryst with destiny can only be halted by the unfulfilled aspirations of its wanting millions. Now think of this, India is the third largest economy in the world in terms of purchasing power parity and it is predicted that by 2050 it will be a $30-55 trillion economy, depending on whose projections is music to your ears. 2050 is just 36 years from now and in a nations lifetime that is a mere blink. This is not daydreaming.
In 1990-’91, when PV Narasimha Rao initiated the first dismantling of the centrally planned state, the GDP of India at current US dollars was a little over $200 billion. Twenty seven years later, it is more than a dozen times that. Increasing 20-fold in the 33 years is really not a tall order. But we must first reduce the inequality between people and regions, lest they become even bigger and more contentious.T
Thus, it is the Human Development Index and Global Hunger Index that will determine India’s overall outcome and the quality of its freedom rather than Ease of Doing Business or Economic Freedom.