This is something I think about every day now. Given that there is no clear dominant side, it all comes down to what criteria one values most. Some of them will be objective, others not so much. The most objective criteria is obviously the ranking system and going by that, India is the best side followed by Pakistan. Period.
Now I do believe the ranking system could be made more objective and better by giving teams more points for winning tests overseas and lose more points for losing tests at home.
So, other than the ranking system, it really becomes all subjective and that usually means recent memory.
Until August 2016, South Africa were considered a horrible side and we were talking about how there is something rotten in their cricket, totally forgetting their achievement from 2007 onwards up to 2014-15 and especially their excellent away record in an era where everyone struggled outside. 2 series defeats and they were gone. Well I am glad they came back the way they did and made a lot of people look like fools.
South Africa clearly have the best pace attack in the world now and it's an attack if fit, should succeed in Australia, South Africa, New Zealand, England...so that's 4 nations sorted, and they can potentially win their next 2 away series - New Zealand and England and are expected to comfortably defeat Sri Lanka at home. That should definitely bring them in the top 2.
England have a more experienced and skilled attack, and should succeed in all those 4 nations but they don't have much cricket there until next summer's home season. So I don't expect them to climb up the rankings anytime soon.
India will by the end of the home season next March have a comfortable lead at the top of the rankings, but there are serious question marks over their overseas record and all the accolades King Kohli gets now will disappear very fast if 2018 away tours are a repeat of 2011 and 2014 away tours. Dhoni was the daring captain when he led India to number 1 rankings in 09-10..it was only with the overseas defeats that the unflappable Dhoni became indifferent and disinterested Dhoni.
Pakistan are a good test side, and probably have the most varied attack simply on account of having the best spinner in the world (**** you *****) but their batting line up does have serious question marks as well against seaming and bouncy wickets and given that they are in the middle of one and going to face a tough summer in Australia, this side can fall apart very soon and go down in the rankings. Batting collapses are a bit more common now than they were a year ago and it is now getting a bit worrying. I feel Team Misbah might just have reached their peak and this is their ceiling.
The seam attack is also short of becoming as potent as South Africa or Australia's ones because of the inconsistency in Rahat and Sohail and Amir way short of what is expected of him.
Australia I feel are still a good side in their own conditions, and should still beat majority of the sides at home. They are not a very strong batting unit but I will still back them blast hundreds on their home roads. Tracks like Hobart are uncommon in Australia and no other side in the world has a pace attack like South Africa's. So expect them to gain points against Pakistan later in summer, but then a major thrashing is coming their way in February, so a lot of points will be lost there.
These 5 are the top 5 sides in world cricket and I feel they will beat each other when the conditions suit them and lose when it doesn't. They all have specific strengths (South Africa in pace attack), (India and Pakistan in spin attack), (England in depth of their side, with their allrounders) and Australia (with their opening bowler and guys like Warner, Khawaja etc who can tear you apart on flat tracks).
It will be a game of musical chairs between the top 5 and teams that get favourable schedules will enjoy greater time at the top. India have the advantage of playing 1-2 years of home cricket, and then a year of away cricket and that will boost their rankings the most. So expect them to remain at 1 for some time, followed closely by South Africa based on the upcoming schedule.