Steadily, India appears to be moving up in many global rankings ranging from ease of business, to competitiveness, to economic freedom and suchlike. This is a welcome development and reflects improvements in the many processes and rules that govern economic outcomes. While that part is a welcome occurrence, there is another facet of global rankings that I worry about.
Each rating and ranking method has many different kinds of problems associated with it, they range from those related to data sources and updations, definitions, coverage, measures used, errors of exclusion and inclusion, use of inappropriate methods and even improper reporting. To top it all, the problem of missing and old data can never be addressed to everyone's satisfaction. Depending upon whether some like or dislike the overall results, each rating and resultant ranking can easily be criticised.
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Though each of the above is an important issue in any ranking, here I focus on a different concern.
Increasingly I fear that such global rankings are being taken too seriously. Like the Miss World pageant, such rankings are easy on the eye, simple to understand, and what is more, provide hope of untold affluence and the potential of receiving global attention. But I argue, that also like the Miss World pageant, they are quite useless if the objective is to understand and change reality. But in their twitterings, media stories, seminars and speeches, I find academicians, experts, bureaucrats and politicians quite enamoured of such improvements.
To put it in other words, let us not use global rankings as a criterion to judge ourselves, our failures, or our success. If they show we did well, great, if they do not, no big deal. To judge our own performance, we need to develop our own metrics that reflect our own aspirations and priorities, not those that experts in other countries have decided at a global level.
The dangers of taking such global rankings seriously are manifold, they sometimes end up directing our attention towards areas that may not be the most important for India. Let me provide an illustration. The famous doing business survey conducted by the World Bank that ranks countries on the basis of Ease of Doing Business. Admittedly, this is a fairly well thought through survey that captures perceptions of a selection of the business community. Many use it as a key measure of countries' investment attractiveness, this despite the fact that investment itself is not quite so well correlated with it.
What is ease of business in a country measured on? A range of questions are asked related to Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Minority Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency. India does quite poorly when compared to most other countries in most of these items, and that is not something I would argue with.
But most Indian entrepreneur's I have met and my own experience points towards a different reality. Namely, the key difficulties in doing business are somewhat different than those being captured in the World Bank survey. Businesses in India today have a serious problem with employability - not included. They would gain a lot when hurdles of internal trade are eliminated (the goods and services tax will address only a few problems) - again, not included. Businesses are highly impacted by that evil called inspector raj - again, not explicitly covered. Businesses would save a lot of resources if India can get the tax guys to behave ethically - included, but not quite. Let me elaborate on the last, the ratings rightly look at the tax processes as they are laid out. But in India most micro, small and medium enterprises suffer problems from out-of-process issues. For instance, rules and procedures are complex both on the taxation and company law fronts, while books are typically maintained by accountants and other staff with poor training levels. And so mistakes do happen. When scrutiny occurs, hours, days and weeks are wasted as the government's rules are used as a tool for negotiating the side-payment. The rankings did not include this in their ambit. It may not be an important enough issue in many countries. But in India it is.
Take another example, of the Economic Freedom ratings conducted by another global think-tank, the Heritage Foundation. (I can rightly be accused of mimicking the same for Indian states.) The global Economic Freedom ratings do not include something as basic as literacy to reflect how economically free a country is. This is not important for western countries as basic literacy exists for all. But India's priorities are different at this stage of development, and we cannot dream of economic freedom without basic education levels being achieved.
The recently released competitiveness ratings by the WEF are another example. Competitiveness is a function of a country's economic structure. A country like the United States, where high-end services drive the economy, is very different from India, whose competitiveness is driven by a low-cost environment. Problems of measurement aside, India needs its own competitiveness index that is based on creating a highly cost-efficient and productive economy with low level of human capital. This objective will generate a different set of priorities, more apt for India than that created by the WEF.
In other words, I will be happy if India beats Hong Kong and Singapore and other such top-ranked countries, and perhaps I may also indulge in some chest thumping on that success. But privately at least, I would look into the more important things that India needs to do. Yes, we need to measure India's performance, and perhaps even do a global comparison. But India needs to design its own ratings, to reflect its own priorities, and use those to monitor our own solutions.
Let desi priorities be used to rate India. It is not all that difficult.
Laveesh Bhandari is an economist