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

Uma said…
It seems to me that the common man is not so enamoured of Modi now but then who is there to replace him?
Sharad Shah said…
It is apperant that China is doing something right. We may not agree with their politics but there must be - and there is - a way to adopt their economic approach without embracing their politics.

Briefly keep an eye on jobs and employment. Become the factory of the world.

TRENDING

Reducing emission? India among top nations whose coal as energy source going up

By NS Venkataraman*  The State of the Global Climate report by the World Meteorological Organization (WMO) confirmed that the year 2023 was the warmest year on record, with the global temperature of 1.4 degree celsius above pre-industrial 1850-1900 base line.

Lockdown 'total failure' of science more than of politics: Open letter on 4th anniversary

Counterview Desk  In an open letter to fellow academicians, scientists and medical practitioners in India, marking the fourth anniversary of India's lockdown (25 March 2024), the Managing Committee* of the Universal Health Organisation (UHO) has insisted on the need to "repair two years of immense damage to science".

Insider plot to kill Deendayal Upadhyay? What RSS pracharak Balraj Madhok said

By Shamsul Islam*  Balraj Madhok's died on May 2, 2016 ending an era of old guards of Hindutva politics. A senior RSS pracharak till his death was paid handsome tributes by the RSS leaders including PM Modi, himself a senior pracharak, for being a "stalwart leader of Jan Sangh. Balraj Madhok ji's ideological commitment was strong and clarity of thought immense. He was selflessly devoted to the nation and society. I had the good fortune of interacting with Balraj Madhok ji on many occasions". The RSS also issued a formal condolence message signed by the Supremo Mohan Bhagwat on behalf of all swayamsevaks, referring to his contribution of commitment to nation and society. He was a leading RSS pracharak on whom his organization relied for initiating prominent Hindutva projects. But today nobody in the RSS-BJP top hierarchy remembers/talks about Madhok as he was an insider chronicler of the immense degeneration which was spreading as an epidemic in the high echelons of th

Magnetic, stunning, Protima Bedi 'exposed' malice of sexual repression in society

By Harsh Thakor*  Protima Bedi was born to a baniya businessman and a Bengali mother as Protima Gupta in Delhi in 1949. Her father was a small-time trader, who was thrown out of his family for marrying a dark Bengali women. The theme of her early life was to rebel against traditional bondage. It was extraordinary how Protima underwent a metamorphosis from a conventional convent-educated girl into a freak. On October 12th was her 75th birthday; earlier this year, on August 18th it was her 25th death anniversary.

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam* RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

'Wrong direction': Paris NGO regrets MNC ArcelorMittal still using coal-based steel

By Rajiv Shah  A new report by Paris-based non-governmental research and campaigning organization, Reclaim Finance, has blamed the MNC ArcelorMittal – formed in 2006 following the takeover and merger of the western European steel maker Arcelor (Spain, France, and Luxembourg) by Indian-owned Mittal Steel – for using use “climate destructive” metallurgical coal for its projects in India.

'Flawed' argument: Gandhi had minimal role, naval mutinies alone led to Independence

Counterview Desk Reacting to a Counterview  story , "Rewiring history? Bose, not Gandhi, was real Father of Nation: British PM Attlee 'cited'" (January 26, 2016), an avid reader has forwarded  reaction  in the form of a  link , which carries the article "Did Atlee say Gandhi had minimal role in Independence? #FactCheck", published in the site satyagrahis.in. The satyagraha.in article seeks to debunk the view, reported in the Counterview story, taken by retired army officer GD Bakshi in his book, “Bose: An Indian Samurai”, which claims that Gandhiji had a minimal role to play in India's freedom struggle, and that it was Netaji who played the crucial role. We reproduce the satyagraha.in article here. Text: Nowadays it is said by many MK Gandhi critics that Clement Atlee made a statement in which he said Gandhi has ‘minimal’ role in India's independence and gave credit to naval mutinies and with this statement, they concluded the whole freedom struggle.

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

Attack on foreign students: Gujarat varsity's reputation, ranking at stake, say academics

Counterview Desk  Expressing anguish over the attack on international students in Gujarat University hostels, a letter claimed to have been signed by 122 current and former academics has asked the Gujarat Vice Chancellor, Dr Neerja Gupta, to provide emotional support to the attacked students and to ensure their physical safety.  

As double engine takes backseat in Odisha, BJP is pitted against 'firmly rooted' BJD

By Sudhansu R Das  BJP has got 25 years to build its party base in Odisha. After 25 years, it felt helpless and insecure to fight elections on its own strength. The party was almost crazy to have an alliance with the ruling BJD in Odisha.  Looking for alliance at the time of election shows that the party has not groomed its grassroots level workers into potential leaders.  The state BJP leaders woke up and convinced the Central leaders that they are capable of going solo; the alliance was stillborn. The question is can BJP defeat BJD which is firmly rooted in Odisha after launching piles of populist programs in the state.