Finally, between June 2007 and June 2008, the only area where India has reformed (marginally) is trading across borders. There is no reason to accept everything emanating from the Bank as absolute truth and the WB itself accepts some problems in DB exercises. First, not everything relevant for doing business is captured directly in DB indicators — physical infrastructure, law and order, macro-economy, institutions are instances. Second, information is based on subjective responses to questionnaires and this raises issues of sampling biases. For instance, information collected from a corporate in Hyderabad shouldn’t indiscriminately be applied to informal enterprises in Andhra. Third, some variables (those expressed as shares of per capita income or indices) aren’t particularly convincing. Therefore, one shouldn’t assume the numbers to be very robust. They are roughly indicative and no more and should be used to track a country’s performance over time, rather than indulge in cross-country comparisons. After all, one is quantifying and measuring transaction costs and these aren’t easy to pin down. Nor should DB results be correlated with investment flows. More investments aren’t going to flow into Nepal, Lesotho or Vanuatu.

Having said this, transaction costs in India are high, especially when compared to East Asia, and aren’t declining as fast as they should. It is understandable that capital should flow into India. Thus, we have FDI inflows of $25 billion in 2007-08 and $35 billion in 2008-09. Information on FDI flowing out of India isn’t that easy to get a handle on, perhaps almost $20 billion in 2007-08. Is this because of mergers and acquisitions and companies seeking to become globally competitive? Or are domestic transaction costs driving capital out? Transaction costs are certainly a factor and the point to note is that an exit option (for both capital and labour) is only available to relatively larger companies and individuals. Transaction costs hurt the relatively small more. To take one example, there was Madhu Kishwar’s work on street vendors and cycle-rickshaws in Delhi, something that won’t figure in DB databases.

... contd.