Today's Editorial

21 November 2017

World Bank and IFPRI



Source: By Madan Sabnavis: The Financial Express



There are two important global reports that have been published this month—by the International Food Policy Research Institute (IFPRI) and the World Bank—which present two different economic frames. The World Bank’s ‘Doing Business Report’, which focuses on the ease of doing business, is essentially a reflection of what governments do to lessen red tape and make it more convenient for one to do business. This holds not just in terms of starting a business, but also links the chain with credit, markets, trade, insolvency, etc.


The Global Hunger Index of IFPRI, which is more a concern of just societies that have a proclivity towards socialism, looks at the level of relative deprivation and highlights the responsibility of the government in alleviating the same. The government needs to be applauded for doing everything that is required to make doing business easy and the improvement by 30 ranks vindicates this effort. A low rank on the doing business scale has been a concern for the multilateral agencies as well as rating companies, where the low rank is often used as a reason to be critical of the policy framework. By relentlessly focusing on the lacunae with the Insolvency and Bankruptcy Code (IBC) being the big bang reform that has come in, investors should be more confident about investing in India.


The World Bank has admitted that GST has not been included in this exercise, which really means that, going forward, the rank has to improve sharply, as this was always one major concern on the taxation front where the structure was complex with a plethora of taxes and rates that led to severe governance issues. Given that, in a year’s time, the hurdles would have been crossed, it should result in brownie points for India. The same holds for insolvency, where the implementation of the IBC would have also played out. In fact, there would also be more clarity on the recapitalisation exercise that should begin any time in the next quarter or so. Therefore, the dream of coming in the top 50 countries looks realistic today and this is something we can be happy with.


It would also be realistic to expect the global rating companies to review the rating for the country and seriously consider an upgrade by at least 2 notches, if not more, considering that they have been critical of the tax systemNPA resolutionstarting business, etc. In fact, strong economic numbers, which include government finances, exchange rateforex reservesforeign investment, etc, should add to the strong case for an upgrade. Some of the major gains in terms of ranking have been accomplished in the areas of protecting minority interests in markets (rank 4) and getting credit (rank 29)—where the regulators Sebi and RBI have always been proactive and ahead of the curve most of the time. The reforms on the tax front also have been progressive, with the rank improving from 172 to 119. GST should definitely take us further up the scale.


The areas in which there have been slippages or where limited progress has been made are starting a businessconstruction permitsregistering property and trade across borders. For the first three, the ball is really in the court of states and local authorities, where the Centre has limited say. Therefore, states will have to work on these aspects to ensure that they also move up the pecking order in the state rankings for the same (a separate report brought out by the ministry of commerce).


The question to be asked is as to how does this get linked with investment? Here, the answer is that the rank per se will not be important for taking decisions as much as the processes that have been opened up which led to this improvement. As policy formulation and reforms are a continuous process, the changes made will be influencing decision-making. Domestic investors would be looking positively at tax reforms or any measure invoked for setting up a business, especially where land, construction, etc, is concerned. Foreign investors do regularly look at the score on this scale when determining where to invest, as the World Bank ranking is held sacrosanct universally. Therefore, with the determination shown to hasten the pace of reforms, it may be expected that there will be an increase in flow of investment, especially in areas where red tape and bureaucratic procedures came in the way.


The IFPRI Hunger Index narrative is, however, dismal and is a reflection of the fact that there is reason to believe that growth achieved in the last decade has an elitist tilt and that the narrow overwhelming focus on productive sectors has achieved the goal without the trickle-down effects working their way. In fact, the constant focus on making the government a productive spender rather than an efficient redistributor has come in the way of creating cogent delivery mechanisms for the poor, which is there to be seen.


The score had moved faster downwards between 1992 and 2000from 46.2 to 38.2, but then moved to 35.6, i.e. down by 2.6 in the next eight years, followed by 3.2 to 31.4 in the subsequent eight years. It does appear that the strategy in the last decade was more on accelerating growth than direct attention on the welfare of the poor. With 14.5% of the population being classified as being undernourished21% of children being wasted (low weight compared with height) and 38.4% children being stunted (height relative to age), state failure stands out. From the point of view of growing an egalitarian society, such numbers are reflective of neglect, while from the economic standpoint, such figures do not speak well of the so-called demographic dividend that we profess.


Quite clearly, decades of neglect of the poor get reflected in these numbers, and while it has become fashionable to be critical of the Centre’s and states’ expenditure on social welfare, there is need to not just revisit strategies, but also increase the allocations in a meaningful way. Otherwise, such lopsided development is not sustainable. The irony is that India is ranked 100 on both the indices, where the Doing Business stands out as it is an improvement of 30 ranks in a set of 190 countriesThe Hunger Index is for 119 countries and hence the range of emotions is different for each of these numbers.

In fact, the Hunger Index places India lower down the order compared with Bangladesh and Sri Lanka. When juxtaposed with the fact that India has for long been the fastest growing major economy in the world, both these indices show contrary pictures. The questions that we can ask are: How can a country which has witnessed such reforms grow by only 7%? In the same breadth, it can be posed as to how can a country which is growing at 7% have such a high level of deprivation?


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