The results from Ease of Doing Business 2018 – the World Bank’s newly released index on state regulatory condition, credit availability, and tax mechanisms – are a reassuring stamp of approval for Indian Prime Minister Narendra Modi’s ongoing slate of market reforms. The latest World Bank report has India jumping up 30 places in the Ease of Doing Business ranking, settling into 100th position.
Why the sudden rise? World Bank representatives believe Prime Minister Modi’s economic reform package – focussed on cutting back red tape and cultivating a more attractive investment landscape – is a concrete demonstration of good faith when it comes to changing an oft-intimidating investment climate. “It indicates India’s endeavour to further strengthen its position as a preferred place to do business globally,” emphasised Annette Dixon, the World Bank’s South Asia Vice President, at a media event in New Delhi.
Before gaining office in 2014, one of Modi’s campaign promises was to bring India to a Top 50 position in the Ease of Doing Business ranking. However, despite his commitment to reforms, the World Bank’s latest report is only a snapshot of India’s economic fortunes. The populist premier has still been forced to fend off accusations of policy paralysis, ineffectual tax restructuring, and endemic graft within his Bharatiya Janata Party (BJP).
Those criticisms only grew louder after the chaotic rollout of the Goods and Service Tax (GST) and growth-slowing cash ban on high denomination notes. Unsurprisingly, the Modi government is using the Ease of Doing Business ranking jump to defend and promote those and other reforms, citing India’s burgeoning digital industry and expanding foreign direct investment (FDI) inflows. These achievements, alongside New Delhi’s recent promise to recapitalise India’s banks and boost private investment in the manufacturing and service sector, are underpinned and facilitated by Modi’s “big ticket” economic measures.
But even as India steams ahead with broad regulatory and tax reform, an obvious question remains – can other emerging economies in the region follow New Delhi’s lead? In neighbouring Pakistan, Bangladesh and Myanmar, persistent social and domestic issues continue to dominate policymaking. Masses of red tape, avoidable waste, and convoluted regulatory frameworks have prevented the kind of wide-spanning economic reform India has so recently embraced.
Ebbing Reforms Holding Back Pakistan
Despite some encouraging measures, Pakistan’s ranking on the Ease of Doing Business index slid back to 147th this year. In particular, the World Bank report highlighted three key reforms which ease business registration; boost transparency in commercial property registration; and facilitate ‘minority investor protected’ cross-border trade. Pakistan’s drop came even as the Bank praised Islamabad’s drive to improve the country’s business environment. In fact, last year’s Doing Business 2017: Equal Opportunity For All had identified Pakistan as one of its top 10 improvers.
Pakistan’s ranking design should be a potential warning sign to India. Market improvements can easily fall by the wayside if the momentum of reform is not maintained, and the global economy is no vacuum. When one country loses the initiative, other emerging markets continue reforming and competing for outside investment at the same pace.
Unfortunately, relative declines in performance are particularly common in the transitioning economies of South and Southeast Asia. It i
s hard to see how Islamabad could have stayed focused on market reforms while Prime Minister Nawaz Sharif was being forced to resign following a controversial graft probe. The toppling of Sharif has wreaked havoc on Pakistan’s stock market – with the benchmark KSE100 Index settling in for a bearish end to the year – and undermined the country’s credit profile at a critical time. Coupled with Pakistan’s notorious fiscal slippage and deteriorating regional relations with India, the country’s political turmoil continues to hamper FDI.
Bangladesh’s Obstacle-rich Economic Landscape
On the other side of India, conditions in Bangladesh illustrate the stark contrasts even between South Asian economies. In the same areas where New Delhi and Islamabad are moving ahead, Dhaka is struggling to enact basic reforms. Consistently ranked near the bottom of global rankings, Bangladesh’s latest infrastructural venture – a 4G telecommunications auction – is a good example of the maladies afflicting the country’s economy. On the eve of the auction, desperately needed investment from Grameenphone, Bangladesh’s largest telecommunications provider, is being withheld until the government provides clear auction conditions and certifiable guarantees.
Grameenphone is also concerned about the pricing for available spectrum, although Bangladeshi officials do notseem to share those concerns. Their main preoccupation centres on raising money, even though the country’s previous 3G auction in 2013 saw much of the available spectrum remain unsold and many rural areas left off the coverage map. Mismanaged auctions have real, deleterious impact on the country’s connectivity and major pillars of the government’s economic policy.
From a broader perspective, poor infrastructure, lacklustre reform coordination, and opaque business arrangements perpetuate downward pressure on Bangladesh’s economy, crippling growth and hindering market diversification. Considering these challenges, it’s not surprising Bangladesh slipped down a notch on Ease of Doing Business 2018 and remains one of the lowest-ranking countries in the world.
Missed Opportunities in Myanmar
Despite the challenges facing Pakistan and Bangladesh, the best regional example of what not to do comes from Myanmar. When Aung San Suu Kyi’s National League for Democracy (NLD) swept into office, Western democracies celebrated her credentials and promises for reform-minded development. Now, one year after coming to office, the Myanmar government’s response to the Rohingya crisis has shattered Aung San Suu Kyi’s moral authority and crushed budding investor confidence. Despite promises to unite Myanmar, Aung Suu Kyi has been reluctant to address the persecution of the country’s Muslim minority.
With foreign investors increasingly wary of reputational damage, the Rohingya crisis has prompted jittery investors to turn their eyes toward other, calmer markets. Even before the crisis, analysts and investors feared that Myanmar’s flagging economy – undermined by infrastructure deficiencies and archaic regulatory frameworks – would grow weaker during the transition. Aung San Suu Kyi’s inexperience as a fiscal reformer has also been blamed for the disappointing outcomes of Myanmar’s much vaunted “opening”.
The Long-term Takeaway
The World Bank insists that Modi’s commitment to reform will have a positive domestic and regional impact, bolstering India’s growth during a period of short-term market turbulence. If these predictions hold true, India’s neighbours will have a valuable local model, and investor, to turn to for advice and assistance down the road. However, market analyses of Pakistan, Bangladesh, and Myanmar show just how deeply ingrained economic hurdles still remain. Even if India sets a new standard, will its neighbours enjoy the political or economic stability necessary to follow?