India's MoSPI Proposes Framework to Measure Knowledge Economy

India's Ministry of Statistics and Programme Implementation (MoSPI) has proposed a framework to measure the country's knowledge economy. The proposal targets AI, R&D, software, innovation, and digital assets – sectors where traditional GDP metrics capture little of the actual value creation. For equity investors, the question is whether this framework will force a reassessment of how Indian IT and pharma companies are valued.

The MoSPI Framework and Its Five Pillars

The five pillars each present distinct measurement challenges. AI contributions often appear as productivity gains in other sectors rather than standalone output. R&D spending is an input, not an output, and its economic return can take years to materialize. Digital assets such as data sets and algorithms have no standard valuation method. MoSPI's proposal attempts to standardize how these categories are tracked. If adopted, it would give investors a clearer picture of which parts of the economy are actually growing versus those that are merely inflating on paper. Other economies, including the United States and the European Union, are also developing methods to capture intangible asset value, placing India's proposal within a global trend.

Why This Changes the Valuation Case for Indian IT and Pharma

The proposal arrives as global policymakers struggle to capture intangible economic contributions. India's IT services exporters – Infosys, TCS, HCL Technologies – generate most of their value from software, platforms, and proprietary methodologies. Currently, these companies trade on revenue and earnings multiples that discount their intangible assets. A government-backed measurement system could force analysts to reassess how much of a market cap is supported by hard assets versus intellectual property. That reassessment would not happen overnight, the framework creates a catalyst for it. The framework could also influence how foreign investors allocate capital to Indian equities. If the measurement system gains credibility, it may reduce the discount applied to Indian tech stocks relative to global peers.

Pharma and biotech R&D is another direct beneficiary. Indian pharma companies invest heavily in drug discovery and clinical trials, those costs are expensed rather than capitalized. A knowledge economy framework that treats successful R&D as an asset would change how investors view Sun Pharmaceutical Industries and Dr. Reddy's Laboratories. Digital asset creators and AI startups are harder to pin down because most are not publicly listed. The framework could accelerate IPO activity in these segments by giving founders and venture investors a clearer regulatory path to monetize intangible assets.

The Risk of Execution and Political Interference

Measurement frameworks carry execution risk. If MoSPI's proposal results in a complex or opaque methodology, it could create confusion rather than clarity. Investors would then face a period of uncertainty where reported knowledge economy data is unreliable. That would delay any valuation adjustments. Political interference is another risk. If the framework is used to justify subsidies or tax breaks for favored sectors, it could distort capital allocation rather than improve it. The market would then need to distinguish between genuine intangible asset creation and regulatory arbitrage.

Consultation Phase as the Immediate Catalyst

The consultation phase is the immediate catalyst to watch. If MoSPI releases a detailed methodology with clear definitions and data sources, the market can begin pricing in the implications. If the proposal stalls or becomes vague, the opportunity cost is simply the time spent waiting for a framework that may never arrive. For now, the most actionable takeaway is to track which Indian companies begin voluntarily disclosing knowledge economy metrics in their annual reports. Early adopters will signal that they expect the framework to become binding. That signal alone could be enough to trigger a re-rating in the affected stocks.

For broader context on how intangible assets are reshaping global markets, see our stock market analysis and the NVIDIA profile for a case study in AI-driven valuation.