India among most corrupt in World Bank survey

New Delhi: The brouhaha over India ascending a few notches on the World Bank’s ease of doing business report has drowned the murky goings-on in the corridors of power that not only bring to light the uneasiness of doing business, but also shames a government seeking the high table of the world’s most enterprising nations.

The Bank’s ongoing Enterprise Survey that complements its ‘Doing Business’ report released early Wednesday, ranks India among the top 10 per cent of the world’s most corrupt across all countries with enterprise data.

The enterprise analysis unit of the World Bank is gathering data on 135 countries from around the world through firm-level surveys of more than 1,30,000 private sector companies.

In a representative sample of 9,281 business establishments in the private sector in India that the World Bank interviewed between June 2013 and December 2014, 23 per cent of firms, across India, reported at least one bribe request across six regulatory and utility transactions i.e., bribery incidence.

Mercifully, for the incumbent NDA dispensation at New Delhi, the revelations in the Survey actually point to high level of corruption that Prime Minister Narendra Modi has inherited from the predecessor government headed by Manmohan Singh under direct supervision of the Gandhi family. Modi came to power in New Delhi in May last year, riding an overwhelming mandate against corruption.

The World Bank’s Enterprise Survey complements the ease of doing business (DB) report by capturing a broad range of business environment topics, some similar to the DB report such as access to finance and electricity and some not included in the DB report, though very critical to a business environment, such as corruption and crime. India has been placed 130 among 189 nations in Bank’s DB ranking for 2016.

The Enterprise Survey notes that within India, there is wide variation across states with some of the lower income states having much higher incidence of corruption: Jharkhand (87 per cent), Rajasthan (54 per cent) versus Gujarat (7 per cent) and Karnataka (4 per cent). In the period under review, Modi was first the chief minister of Gujarat (among the least corrupt states in the country) and subsequently the prime minister of India.

Interestingly, Jharkhand and Rajasthan scored high in the sub-national ranking of states in ease of doing business, in a September World Bank report for all Indian states commissioned by the Modi government. Corruption was particularly pervasive in certain types of transactions.

Half the firms surveyed reported being solicited for a bribe when seeking an electricity connection. Among the list of 15 potential business environment obstacles, 20 per cent of respondents when asked to identify the biggest obstacle to their day-to-day operations chose corruption.

Since corruption raises hidden transaction costs, it discourages new small businesses and entrepreneurship. Entrepreneurial activity is a pillar of economic growth. The DB report also emphasizes this pointing out how young firms in the USA have been a more important source of net job creation than incumbent firms. Entrepreneurship index measured as new business density data indicates new registrations per 1,000 people in the ages of 15-64 years. It is an important indicator of trends in new firm creation, showing the relationship between new firm registration, the regulatory environment, and economic growth.

The World Bank data from 136 economies on the number of newly registered firms per year over the period 2004-2014 captured by the DB 2016 ranking shows India’s new business density at 0.12 for the year 2014, lower than Nepal’s 0.69 and Afghanistan’s 0.15.

The prime minister’s focus on ‘Startup India’ is, therefore, very timely. The measurement of sustainable growth of startups could be a good benchmark of the progress of the reform process pursued by the NDA government toward a more business friendly environment.

Meanwhile, there is need to give credit for improving India’s doing business scores where it is due. The distance to frontier index of the DB report shows that India’s DB score increased the most between 2010 and 2011, as reflected in the DB rankings of the years 2011 and 2012. This increase was by 2.35 percentage points. Though it slowed down in 2012 (DB ranking for 2013) and actually dipped in 2013 (DB ranking 2014), it rose again by 2.31 percentage points in 2014 (DB 2015). All this has been during the previous UPA regime headed by Manmohan Singh.

The NDA government, in its one year, has been able to increase the DB score by 2.01 percentage points, lower than the previous government. The impact of the reforms undertaken by the new government can only be assessed in times to come.