C.V.O. CA'S NEWS & VIEWS

Compiled by:

CA Henik Dilip Shah

Background

In Economics, we are taught something called as “Utility Analysis”. It is a measure of satisfaction an individual gets from consumption. In other words, it is a measurement of usefulness that a consumer obtains from any good or service. This satisfaction will diminish every time the same consumption is done.

So basically, humans need something more, something better than what they consumed/experienced the last time, to get an increased satisfaction or at least maintain the earlier level. On a broader note, modern economies are built on this very element of human behaviour, wherein newer products are claimed to be better

[1]than the older ones. As discussed in the article on “How money works” we see that in case of token (fiat) currency, a system which probably all countries on earth are using, human society is effectively placing a bet on future prosperity, where world wealth would be more than the current levels. To ensure continuous prosperity, keep human consumption growing and growing.

To achieve this everlasting growth, there will be a need for limitless newness of goods and services. This newness can be achieved in two ways, either by developing a new product for a particular purpose, or by starting to use an existing product for a different purpose. For example, youth is a stage of life wherein a human should ideally be at the peak of health, and rationally energetic. At this stage, one should not be needing any artificial energy tonic, for one can eat nutritious food and stay healthy. Yet, advertisements for energy drinks can be perceived as targeting towards youth, with use of sportsmen and athleticism in their advertisements. The purpose of the product is shown as upgrading from current levels of energy (and not healing any lack of energy), reaching new highs and being better than peers.

Take the case of Monster energy drink. A 2015 article from “The NewYorker” stated, ”To convey the idea that its drinks can help any guy 'unleash the beast', Monster produces slick video compilations of dizzying stunts

[2]performed by well-known athletes.” In India, about 71% of urban adolescents consume energy drinks. It's a [3]market estimated to be worth $154.5 million.

When a good or service claims to be new, it has to make itself perceive as better than the earlier versions. So now people know a better choice, which they didn't know earlier. With this knowledge, a desire shall also come in to acquire the knowledge earlier than others, so as to gain a competitive edge. Its earlier use now begins to matter.

The Use

Imagine that one day, experts decipher all laws of economy, and make a predictive algorithm of it. The first lot to use it will gain the maximum, beginning with stock markets. However, when more and more people start to apply the same algorithm, the gains would reduce to a point where there will be no gains, because everyone now uses the same algorithm.

When people chose something which is perceived better, it only stays better till not all have knowledge of it. Once everyone knows a better thing, there is no competitive edge and effectively the knowledge of the better thing is now obsolete. Hence, acquiring knowledge and adapting also becomes a continuous process. If we do not, then this is what will happen:

The Paradox of Knowledge

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Post World War I period saw a rise of Socialism, wherein the means of production and distribution are owned and operated by the state and its citizens can be economically equal. Karl Marx's writings were one of the major reasons behind this rise. The Czar couldn't do much and a socialist revolution happened in Russia. But industrialists in countries like Britain and France, using the same Marxist diagnosis, strove to make the life of workers better, strengthen their national consciousness and give them a say in politics. The result was, that although labour unions did get some power, industrialists and existing politicians still ruled, and the wave of socialism couldn't engulf such countries. The same knowledge of Marx's writings, was used for achieving completely contradicting results. This brings us to the paradox of knowledge.

The Paradox

Centuries ago, especially before the industrial revolution, human knowledge increased at a leisurely pace, and thus economics too changed at a leisurely pace. Today, our knowledge is increasing at breakneck speed, so theoretically we should understand the world better and better. But what happens is our new-found knowledge will lead to faster economic changes, and in order to understand these changes, we will accelerate the accumulation of knowledge, which will further accelerate changes. It's a never ending cycle, with ever increasing speeds.

But if one can have predictive knowledge, it can race ahead of others. Further, if this can also help alter the course of events, influence someone's choice, then one can also have a God-like stature. Past data-points such as events, goods or services might help, but deeper analysis of current data will be needed. Further considering the advancements, only short term predictions can be effective. Business analytics will be a serious business.

Business Analytics

In June 2019, Google spent $2.6 billion to buy Looker, and Salesforce, a software company, spent a hefty $15.7 billion buying Tableau. Both Looker & Tableau specialize in enterprise-scale data modelling that automates data analysis. Google and Salesforce can mould these companies into their existing cloud services

[4]platforms, which have artificial intelligence and machine learning algorithms built into their foundations.

In Indian context, the analytics industry currently accounts for almost 21% of the whole IT/IT enabled services (ITeS) industry in India. The analytics ecosystem in India is led by Domestic IT/ITeS firms such as TCS, Wipro,

Tech Mahindra, HCL etc. The overall analytics industry in India is currently estimated to be $3.03 billion annually in size. In terms of geographies served, almost 47% of analytics revenues in India come from export of services to the USA. What is interesting to know here is that consulting firms like Deloitte account for 10% of

[5]the analytics market.

Why does it matter?

For an accountant or a tax return preparer, his basic job is to collect raw data and organise it into meaningful information as required by any standard or statute. This raw data is predominantly collected from invoices and bank statements and a major time is dedicated to data entry in the system, and auditors spend their time vouching for accuracy of such data. Bank statements are now being entered into systems automatically, and AI-cloud based accounting softwares are actually trying to credit/debit correct ledgers based on the particulars of statements. E-invoicing is being introduced in India, and once in operation on full scale, it will have an immediate effect on work of accountants and auditors.

Let's take the case of South Korea. It introduced e-invoicing back in 2011. As per a World Bank report, adoption of e-invoicing in terms of transaction value reached 99.8% during the first year of introduction and 99.9% by 2013. On an overall basis, tax costs have reduced, however, burden on tax facilitators has increased.

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[6] A similar observation can be done in India's GST wherein especially for goods' suppliers, tax rates have effectively reduced, but burden on their entry level staff has increased (e.g. E-Way bill generation).

Further, there has been a lot of buzz regarding the use of analytics while undergoing a GST assessment. Once at a seminar, the learned speaker had highlighted the use of data analytics by CBIC. Example being of Groundnut oil manufacturer taking ITC on castor seeds (considering both are taxable), but which ideally should have no use in manufacture and the department's systems can catch such dealers. The same knowledge of manufacturing processes coupled with new knowledge on analytics should be used to detect or prevent availment of such ITC by auditors. Similar use of analytics will also be done for Income Tax assessments, to make it more effective.

Point to ponder

As professionals, we have to possess requisite knowledge in changing scenarios, to gain and maintain a competitive edge. Analytics can be a new avenue for us, but for which the paradox of knowledge needs to be understood. Are we ready to learn, unlearn and relearn?Think over it. Think different!

References

1. http://www.cvoca.org/web4/news_views/may‐2019/CONCEPT‐OF‐HOW‐MONEY‐WORKS.pdf

2. https://www.newyorker.com/business/currency/how‐energy‐drink‐companies‐prey‐on‐male‐insecurities

3. https://www.foodbuddies.in/energy‐drinks‐market‐in‐india/

4. https://in.pcmag.com/news/130940/the‐big‐data‐market‐is‐set‐to‐skyrocket‐by‐2022

5. https://analyticsindiamag.com/analytics‐data‐science‐industry‐in‐india‐study‐2019‐by‐aim‐praxis‐business‐school/

6. http://documents.worldbank.org/curated/en/712881467994710005/pdf/WPS7592.pdf

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