Everyday Economics

Difficulties in doing business

Why familiarity with loopholes goes a long way in life and business

Difficulties in doing business

The World Bank's 'Ease of Doing Business' report is in the news again. This time for being stopped altogether after an investigation by an external Washington-based law firm showed that the Bank's staff members had changed data in the 2018 and 2020 editions of the report on China to improve its ranking in the pecking order of countries. This, the investigation suggests, was done under pressure from the office of the then World Bank president Jim Yong Kim, then chief executive Kristalina Georgieva and one of her colleagues. Georgieva is now the managing director of the International Monetary Fund. Country rankings of Azerbaijan, Saudi Arabia and the UAE may also have been influenced, according to the findings.

The other piece of news is that after operating in India for 25 years, Ford Motor Company has announced that it is going to stop producing cars in India. General Motors and Harley-Davidson similarly closed factories in India earlier. General Motors left at the end of 2017, bringing to close its presence of two decades. The iconic brand Harley-Davidson stopped its assembly operations in 2020 after the Donald Trump administration had limited success in its efforts to persuade India to cut its import duties on imported motorcycles.

What do these departures tell us about the economy? Yes, demand for new vehicles has been weak, reflecting the overall weakness in the economy. Then, these US companies are past their peak globally. The market has been in a decline for at least five years now. Passenger-vehicle sales in 2020-21 were 2.71 million units, compared with 2.77 million units the previous year, and down from the all-time peak of 3.37 million in 2018-19, according to the Society of Indian Automobile Manufacturers. Much has been written about how the US manufacturers do not have the right models to suit the Indian market and the challenge of the home-grown Maruti. Ford is leaving after considering several options, and then concluding that there isn't a sustainable path forward to long-term profitability that includes in-country vehicle manufacturing. The company accumulated losses of more than $2 billion over the past decade.

A commentator recently asked what do the two developments - of the stoppage of the doing-business report and the high-profile exits of companies failing to come to terms with the Indian market conditions even after trying for years and years - seen together tell us? The yearly reports always reminded of the Steven Spielberg film 'The Terminal', starring Tom Hanks. Hanks plays Victor Navorski, who is stranded at the JFK Airport from a politically unstable country, with his travel documents unexpectedly no longer valid in the US - a freak situation forcing him to stay at the airport until the circumstances change. Unruffled, he strives to adjust to the challenge of living, i.e., sleeping, bathing, eating, reading, etc., as comfortably as possible. He makes new friends and takes up construction wage work within the airport premises for some dosh to take out to dinner his crush, a flight attendant played by Catherine Zeta-Jones, that he runs into occasionally. The high-profile exits of US car majors from India in particular remind me of an episode in which Hank helps fill in as a translator to interpret a desperate flyer's pleas in Russian for the US customs and border-protection authorities. The hapless man is carrying life-saving medicines for his sick father but without the supporting papers required under the US regulations. As Hanks realises that the authorities would confiscate the medicines, he tells the officer, played by Stanley Tucci, that he had the words confused and the flyer being questioned is actually carrying the pills not for his father but for a goat. Tucci is sure that that isn't the case, and Hanks, who has clearly been reading the airport forms, specifically the 'blue' one that says if the pills are for an animal, medicinal-purchase licences aren't needed, but lets the Russian go - with the pills.

The lesson being that familiarity with loopholes goes a long way in life and business, even more so in a country with realms and realms of rules and regulations, such as India. High-profile MNCs' struggles to survive and thrive in India reflect their lack of knack in coping with the infamous 'India conditions'. Horror stories from the corporate world that are usually brushed under the carpet illustrate this point and demonstrate why ease of doing business is more than improving rankings on country listings. A few years ago, an MNC had court cases slapped against its top employees, one of whom is known to me, in more than a dozen districts. This happened after it brought out newspaper advertisements for a scheme in which it offered precious metal coins with the purchase of a product. The complainants alleged that the weight specification in 'gram' was misleading the Indian people, and the company ought to have used 'gm'. Similarly, another MNC was dragged to courts for its TV commercial starring a top Bollywood name as room-floor space in it had been specified in misleading units allegedly. The height was when the local executives of a $50 billion global giant were sent notices, alleging fraud, at the complaint of a small sales dealer alleging non-payment of dues worth Rs 4 crore. Calls from no less than the vice president of the MNC's home country and the ambassador in India to the senior-most minister in government made the local investigation authorities see sense finally. These eyepopping stories don't make news headlines because the parties involved shun publicity of this nature. Indices for ease of doing business rarely capture adequately these ground realities and difficulties. Ease-of-doing-business reports would be so much more valuable if they throw light on and lead to positive change in the complex matters on the ground. Reduced number of forms for filing taxes or lifting of foreign direct investment caps help. But the real challenges for doing business lie in navigating everyday issues, which bureaucrats, politicians and economists who make policies ever actually encounter.

Puja Mehra is a Delhi-based journalist and author of 'The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without A Story'

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