'It reminds of money laundering': Sanjeev Sanyal explains how India is ranked by rating agencies

Noted economist Sanjeev Sanyal, in a podcast aired this week, said that India's lower ranking in various indices is based on the opinions of between five and 30 people and that even the World Bank does not take responsibility for its 'Worldwide Governance Indicators'. He said many institutions have used the 'Worldwide Governance Indicators' as a proxy to rank India, but even this report did not belong to the World Bank and was prepared by two random economists. 

Sanyal, a member of the Prime Minister’s Economic Advisory Council, said if you went by objective criteria, India should be at least one, probably two ratings above where it is right now. He said that about 20% of the weightage, roughly speaking, of most sovereign ratings is based on subjective factors, and the rating agencies don't quite tell what they are. "But because I'm from that industry, I know roughly where they come from. So what they do is they use various things like the World Bank's World Governance Indicator as a proxy for things like political stability, governance, and those kinds of fuzzy, subjective things," he said while speaking to historian Hindol Sengupta. 

"Now this affects our sovereign ratings because 20% of ratings (depend) on this. India oddly does badly in them relative to what I would think would be the case, given the fact that we have a well-established democracy and well-established and regulated financial markets. We are not a newbie in many of the things you would think the sovereign ratings would care about in terms of our ability to repay debt. Ultimately, that's what you care about." 

Sanyal said he decided to investigate where all these world governance indicators of the World Bank came from. He said he dug into it and discovered something very interesting. "If you go into the World Bank's world government indicator page yourself, you will see that after telling us what all those indicators are and ranking them and so on, it actually doesn't belong to the World Bank at all. In fact, there is a disclaimer at the bottom saying that there are two random economists who are actually responsible for it, and the World Bank does not speak up for it at all." 

The economist said that he dug further and discovered that this world governance indicator was a weighted average of some sort of further indices. "So I looked into these indices - what were they? I'm talking about the World Bank's world governance indicator. But there are many such things. And so basically, layer by layer, there are all these other indices which sometimes are basically weighted averages of further indices and so on and so forth," he said. 

Sanyal said it began to remind him a little bit of the way in which money laundering is done. "You know, layer on layer of accounts - you lose track of what's going on. So in the same way you have this huge ecosystem of indices. And so there is, for example, 'Varieties of Democracy Index' in Sweden. Then there is Freedom House and so on. And it is quite strange that no matter what the indices are, India does conspicuously badly on all of them," the economist said. 

"So, for example, in 2022, India's academic freedom was below that of Afghanistan. I mean, you've got to be kidding me. And then recently, you had the 'Reporter sans Frontier' or somebody who came up with the Media Freedom index for India. And we were below obviously dysfunctional countries like Pakistan and so on.

He said there was one Happiness Index where it showed that Indians are even less happy than Ukraine and Palestine. "So there's obviously a problem. And it is politically driven quite clearly because if you read some of the reports, they're all tilted in a particular political way. So I dug through even further and discovered that all of the indices - no matter how many of them they exist -  are funded by the same 4-5 institutions. All of them are there some kind of billionaire foundation based in the North Atlantic and one or two government sources, like the State Department," he said. 

Sanyal, who served as Principal Economic Advisor in the Finance Ministry from 2017 to 2022, said America's State Department and government entirely funds the Freedom House. He said a tiny number of billionaire foundations, one or two government departments, and the European Union back such institutions that come up with such indices. 

"So basically, the North Atlantic gives out certificates to various people. These certificates are in various combinations, given weighted averages and then they are given legitimacy by the World Bank by putting it on its page - this world governance indicator - for which they have the sly disclaimer at the bottom of the page saying that actually, it's not there." 

The economist said that nobody is looking after all of this and these are all opinions. "I looked through the methodologies of this. I published papers on this. Also, these are really the opinions of between five and 30 people. Even in your college elections, a survey of 30 people wouldn't be a statistically significant thing. And they are ranking all countries based on this. So this is obvious garbage," he added. 

Sanyal said that nobody has given him any decent answers to any of the questions he has raised regarding the source of the indices and how they are arrived at. He said once a director of the Varieties of Democracy Institute in Stockholm was asked about the methodologies of such indices and rankings.

"He just dismissed it with the most bizarre of answers. He said indices are based on supercomputers cranking out these complex models and high mathematics. You gotta be kidding me. These are the opinions of 30 people. You can easily do it on an Excel sheet, but for some reason, he thought, he somehow managed to intimidate Indians by mentioning complex mathematics and computers."

When asked whether this was a case where foreign correspondents would talk to 10 people they knew at a bar in Delhi or somebody's house and they would write that this is the state of India and they would be quoting other people who have done very similar things, Sanyal said that not only that these studies and these institutes are all funded by the same people. George Soros' Open Society funds half of these think tanks, he said, adding that Rockefeller, Ford Foundation, and the US government are also in that league. 

"So there are a couple of European Union institutions that also do this. So there is a very small group of people who are essentially funding another bunch of institutions who are doing this. And so there's a Ponzi scheme. And there are a large number of people and a large number of institutions that have this view. But in fact, it's the views are very, very small coterie. who will then use the same quotes. So their opinion will be instead of quoting them like in the old style journalism, their opinions will be put into something, called an index as if it is more objective as a result. And then these same people will quote the index in which their opinions are incorporated. So it's a circular thing."