The Hindu Business Line : Performance on four pillars of knowledge

THE time is very opportune for India to make its transition to the knowledge economy, proclaim Carl Dahlman and Anuja Utz in India and the Knowledge Economy, from World Bank Institute (www.worldbank.org) .

They define knowledge economy as "an economy that creates, disseminates, and uses knowledge to enhance its growth and development".

Thus, to them, it is not only high-technology industries such as of ICT (information and communication technology) that deserve the `knowledge' appellation but also anything that "harnesses and uses new and existing knowledge to improve the productivity of agriculture, industry, and services and increase overall welfare".

The Bank adopts an interactive Web-based tool called KAM or Knowledge Assessment Methodology "to benchmark a country's position relative to others".

KAM includes 80 quantitative and qualitative variables for 128 countries. "India occupies the top of the bottom third of the distribution of the global knowledge economy map," when evaluated on the `four pillars' of KEI or Knowledge Economy Index, viz. economic and institutional regime, education and human resources, innovation system, and information infrastructure.

On the last, India is said to have `deteriorating performance' despite the developments in ICT. Why? "Because the world on average has moved faster and improved much more significantly," notes the book, and compares India with Brazil and China.

If that is depressing, let me take you to the chapter on `innovation' where the authors highlight the `new trend' of R&D outsourcing coming into India from sectors as varied as IT and automotive, telecom to pharma.

The "R&D outsourcing market for IT in India is expected to grow from $1.3 billion in 2003 to more than $8 billion by 2010," is a forecast cited from Research & Markets of Ireland.

In a chapter devoted to the fourth pillar, that is, information infrastructure, the authors discuss many indexes.

First, the networked readiness index or NRI that measures "the degree of preparation a nation or community has to participate in and benefit from ICT developments" places Singapore on top and India at the 45th place.

Second, the e-readiness ranking to gauge "the extent to which a market is conducive to Internet-based opportunities" awards rank 1 to Denmark; Korea comes 14th and India is at the 46th place among 64 countries.

"If it were not for the entry of four new countries in the 2004 rankings, India would have moved up four places!"

Third, in the digital access index or DAI in which Sweden leads, India gets grouped in `middle access' category, behind China.

Four, the information society index or ISI that combines 15 variables encompassing computers, Internet, telecom, and social factors, has Denmark at the top, followed by Sweden; among the 53 countries participating in the `information revolution', India scores 51st on computers, 53rd on telecom, 43rd on the Internet, and 51st on social indicators.

A book that reveals how knowledge makes the difference between wealth and poverty.

GAAP for knowledge gaps

IT may seem odd that Indian Accounting Standards finds a place in this column. Yet, the book by N.D. Gupta and Naveen Gupta from LexisNexis (www.lexisnexis.co.in) provides useful inputs by comparing our pronouncements with those of the international bodies and also of the US.

Essential read, therefore, if you are working in an accounting outsourcing outfit, or developing systems for bean counters.

Take, for instance, the topic `software revenue recognition', to understand the differences between Indian standards, the International Financial Reporting Standards or IFRS, and the US's generally accepted accounting principles or GAAP.

"In India, revenue recognition from e-commerce operations by software/dotcom/ any other companies is provided as part of the `Guidance Note on Accounting by Dotcom Companies'," notes the book, on a pronouncement that came when dotcoms were vanishing from existence.

"The main sources of revenue of dotcom companies presently include: membership and subscription, merchandising activities, advertising services, and other services such as web hosting, content selling and so on," explain the authors.

In the IFRS, there is no specific software revenue-recognition guidance, inform the Guptas. "Fees from the development of customised software would usually be recognised by reference to the stage of completion of a project.

In addition, Appendix to IAS 18, `revenue', contains an example relating to recognition of fees from the development of customised software."

The US scene is different; there is a specific guidance on software revenue recognition for software vendors.

Also, there is SOP 97-2 (Statement of Position) on the subject to cover `multiple-element arrangements'. A value is established for each element based on Vendor-Specific Objective Evidence (VSOE), inform the authors. "VSOE is generally limited to the price charged when elements are sold separately. Revenue is recognised as each element is delivered."

The guidance requires that each component's fair value is determined; and "no remaining undelivered elements should be essential to the functionality of the delivered elements".

A book to fill up the gap in accounting knowledge.

Tailpiece

"I always believe in changing my password everyday... "

"Oh!"

"... To the next day!"

Books2Byte@TheHindu.co.in

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