Skip to main content

Ex-World Bank chief economist doubts spurt in India's ease of doing business rank

By Rajiv Shah
This is in continuation of my previous blog where I had quoted from a commentary which top economist Prof Kaushik Basu had written in the New York Times (NYT) a little less than a month ago, on November 6, to be exact. He recalled this article through a tweet on November 29, soon after it was made known that India's growth rate had slumped (officially!) to 4.5%.
In this article Prof Basu warns, "Countries with strong governments often end up with weak economies, and India, after years of impressive growth, risks becoming one of them." The heading is more direct: It terms India a "mistrust economy", noting that the blame for the slowdown in growth should go to Indian rulers' "illiberalism", which is "hurting investors’ confidence."
Interestingly, it is within this overall framework that Prof Basu seeks to target the World Bank, whom he served as chief economist from 2012 to 2016. Professor of international studies and economics at Cornell, and chief economic adviser to the Indian government from 2009 to 2012, he puts in question the World Bank's recently released annual ease of doing business, according to which India’s ranking improved to 63rd, up from 77th last year.
Noting that India -- along with Saudi Arabia, Pakistan and China -- "was among the 10 states that made the most progress" in the World Bank's perception, Prof Basu appears to wonder how could the top banker, whom it had advised, reach such a drastic conclusion, especially when "major indicators show that its economy is slowing down sharply."
Pointing out how Prime Minister Narendra Modi on coming to power in 2014 had promised to make of India an economic powerhouse that would rival China, and on being reelected this year, he pledged to turn India into a $5 trillion economy, nearly twice its current size, by 2024, Prof Basu says, ground realities already suggest a totally different picture.
Thus, the International Monetary Fund’s World Economic Outlook "cut India’s growth forecast for 2019 to 6.1 percent, down from the 7.3 percent that the organization had predicted in April", Prof Basu says, adding, "Between 2003 and 2011, growth averaged nearly 8.5 percent, well exceeding 9 percent every year between 2005 and 2008." However, the most recent "turnaround", he believes, is "sudden and unexpected", and is a "cause for concern."
He says, "The decline is visible in the details, big and small. Passenger car sales, which had been falling for a while, dropped by more than 23 percent in the period between April and September, compared with the same period in 2018... Export growth has been lethargic... Standard & Poor’s recently warned of rising risks in India’s financial sector. The unemployment rate is at a 45-year high."
Prof Basu continues, "It’s not just that economic growth is slowing down overall; inequality is rising as well. According to Oxfam, 73 percent of the wealth generated in India in 2017 went to the richest 1 percent. Inequality was worsening before the present administration took office, but with growth slowing down and unemployment rising, the effects are more painful."
The current slowdown is mostly collateral damage, the result of an erosion of trust caused by the country’s drift toward illiberalism
Wonders the top economist, "So how can it be getting easier to do business in India, apparently, even as by some measures, economic growth is decelerating?" According to him, "These simultaneous developments, far from being conflicting, actually explain each other."
He asserts, "The World Bank’s ease-of-doing-business rankings are primarily an assessment of how good a country’s laws look on paper rather than how they operate in practice."
Thus, he says, "By the report’s own account, 'approximately two-thirds of the data embedded in the doing business indicators are based on a reading of the law'. In other words, a government can adjust its regulations in a way that ensures it will make progress along the index, even if the changes have minimal effect on the ground."
Underlining that real growth "depends on how well the laws are actually carried out", Prof Basu argues, "These days in India, divisiveness is increasing throughout society, while trust in the government is declining, at least among major economic actors. Consider this indirect indicator of waning confidence, which is often overlooked."
Pointing out that "India was a low-investment country for many years after independence in 1947", and "investment did not exceed 20 percent of gross domestic product until the late 1970s", Prof Basu says, " It crossed the 30 percent mark for the first time in 2004-05 and climbed to 39 percent in 2011-12. India had begun to look like, and grow like, an East Asian economy in the 1980s."
How can it be getting easier to do business in India, apparently, even as by some measures, economic growth is decelerating?
Suggesting that this confidence "started to decline", with investment again reaching 30 percent of GDP, by 2016-17, Prof Basu underlines, "A drop in investment is usually connected to a lack of trust in the present and the near future. When businesses worry about a country’s policy environment, they hesitate to sink money into it."
Especially referring to the Modi government's demonetization misadventure in 2017 in this context, Prof Basu emphasizes, "A government’s heavy-handed interference in the market — such as the Modi administration’s decision to ban some paper currency in late 2016 — or general fractiousness, in politics or within a bureaucracy, can hurt confidence in the economy."
According to him, "Economists don’t much like to admit this, but a country’s economic performance depends as much on its politics as on its economic policies. Starting at independence, India invested in political institutions first -- establishing democracy, free speech, independent media, secularism and protections for minority rights."
Suggesting that this helped lay foundation for building confidence in India, Prof Basu says, while "India’s growth in the early decades after independence was sluggish", it would be a "colossal mistake now to squander the political capital that choice generated — especially after the economy finally did take off, first in early 1990s and spectacularly so after 2003."
Concludes Prof Basu, while even now "the fundamentals of India’s economy remain strong", thanks to the post-Independence political legacy, "The current slowdown is mostly collateral damage, the result of an erosion of trust caused by the country’s drift toward illiberalism."
He believes, "India can boost its economy again by reclaiming and building on its progressive heritage."

Comments

TRENDING

Congress 'promises' cancellation of Adani power project: Jharkhand elections

Counterview Desk
Pointing out that people's issues take a backseat in Jharkhand's 2019 assembly elections, the state's civil rights organization, the Jharkhand Janadhikar Mahasabha, a coalition of activists and people’s organisations, has said that political parties have largely ignored in their electoral manifestos the need to implement the fifth schedule of the Constitution in a predominantly tribal district.

Worrying signs in BJP: Modi, Shah begin 'cold-shouldering' Gujarat CM, party chief

By RK Misra*
The political developments in neighbouring Maharashtra where a Shiv Sena-NCP-Congress government assumed office has had a trickle down effect in Gujarat with both the ruling BJP and the Congress opposition going into revamp mode.

History 'will remember' 2019 for silencing dissent, democracy, human rights

By V Suresh*
In the annals of contemporary Indian human rights history 2019 will be marked as the year when the Indian state – the Government of India – exhibited its near total disdain for human rights and rule of law by committing, not by individual or localized acts of human rights abuse alone; in a dramatic manner, the Government exhibited its might in a colossal, huge, collective and fearsome manner its utter disrespect for constitutional values and ethics and that it considered fundamental freedoms and human rights as mere scraps of paper.

'Favouring' tribals and ignoring Adivasis? Behind coercion of India's aborigines

By Mohan Guruswamy*
Tribal people account for 8.2% of India’s population. They are spread over all of India’s States and Union Territories. Even so they can be broadly classified into three groupings. The first grouping consists of populations who predate the Indo-Aryan migrations. These are termed by many anthropologists as the Austro-Asiatic-speaking Australoid people.

Food security? Tribals rendered 'niraadhaar' without aadhaar in Gujarat's Adivasi belt

By Pankti Jog*
Government data on Universal Identity (UID) or aadhaar website may show a coverage of up to 95% till March 2019. But ground realities are not so glorious. In fact, villages of Devgadh Baria block of Dahod, a predominantly Adivasi district in Gujarat's eastern tribal belt, are facing the bitter truth: That you are virtually a niraadhar (orphan) without an aadhaar number.

Assam Foreigners Tribunals: How procedures, laws failed to consider gender discrimination

Counterview Desk
Even as criticising India's courts, especially the Supreme Court and the Guwahati High Court, for complicitity towards exclusion and abuse perpetuated through the Foreigners Tribunals set up across Assam to identify who all are "genuine citizens", well-known NGO Amnesty International in its recent  report, "Designed to Exclude: How India's Courts are Allowing Foreigners Tribunals to Render People Stateless in Assam" says,  the whole system has had harsh impact on the lives of women.