Ranking the rankers

Consider the increase in the global sentiment in favour of India, and it’s difficult to understand the latest A.T. Kearney Globalisation Index that puts India at the bottom of the heap, ahead of only Iran in a list of 62 nations.

How can India slip four notches in the index when the country is becoming a more attractive destination for not just portfolio investment but also direct investment, when India is gaining ground as an R&D centre, as the world’s back office?

Consider also that foreign trade plays an ever increasing role in the economy, helped partly by the steady dropping of tariff rates, and the ranking becomes inexplicable. Part of the explanation may lie in the fact that, though the index has been published now, it relates to 2002.

But then consider how China fares. Here’s a country that has grown by over 8 per cent for years on end, a country that’s running up huge trade surpluses and looks like it’s becoming the manufacturing centre of the world, and it too has fallen four notches, and is placed at 57th out of 62 countries, far behind Botswana and Uganda. So A.T.Kearney has some explaining to do.

It might be argued that the Index is a survey about how globalised a nation is and not about how strong it is economically (the US is 56th in terms of economic integration, as against China’s 37th), but then how does one explain Pakistan being well ahead of India, at 46th place?

Indeed, Pakistan’s performance is placed ahead of India (55 and 61, respectively) even when it comes to parameters like trade and foreign investment! Even more curiously, it’s ranked 34th when it comes to ‘political engagement’, compared to the 57th rank for India. In other words, this is not a ranking that needs to be taken seriously.

The diminishing relevance of rankings shows up in other indices as well. The World Economic Forum’s Growth Competitiveness Index measures the potential to attain sustained economic growth and ranks China at 44, against India’s 56.

Yet the Business Competitiveness Index that measures the ability of firms to create goods and services efficiently, puts India ahead of China (37 versus 46).

Foreign investors, who put about 10 times more money into China each year, clearly don’t give much credence to the Business Competitiveness Index.

Indeed, they put more money into China than they put into higher-ranked countries. Then look at credit rating agencies like Moody’s.

It downgraded India’s foreign currency ratings after the Pokhran atomic blasts of 1998, then refused to upgrade it till last year despite the sea change in the economy and the surge in foreign exchange reserves.

Indeed, even after the upgrade, it kept India in the sub-investment grade category, ostensibly on the grounds of the weak fiscal situation.

But, ironically, Moody’s itself said, in the same review, that the fiscal strain would not easily translate into a forex crisis because of the government’s ability to finance its deficit with internal borrowings!

So these rankings don’t matter much, as investors make decisions based on a variety of parameters that rankings can’t even begin to capture.

Yet, for players at the margin, who don’t know a country and therefore rely on such rankings to make the initial go-no go decision, they are important. The ranking agencies need to do some introspection as well.