High fiscal deficit exposing India to shocks

India’s high budget deficits are partly due to a large population and low per capita income levels, which increase macro-economic imbalances and thus 'expose the economy to shocks', say Moody’s

Indian economy is exposed to 'shocks' due to high fiscal deficit and the country’s credit outlook will depend on the Narendra Modi government’s initiatives in the next month’s budget to contain expenditure and reduce exposure to global commodity prices, says Moody’s in a research note.


The ratings agency said, “More relevant to (determine) the sovereign credit outlook will be whether the budget includes measures that address the Government’s low revenue base, high current expenditures and exposure to commodity prices”.


India’s budget deficit is high and this increases macro-economic imbalances and thus 'expose the economy to shocks', Moody’s Investors Service said in the report titled, “Frequently asked questions on India’s fiscal position and the forthcoming budget”.


“In absence of measures to reduce the fiscal deficit, the future high growth rates many forecast for India may not be realised. The July Budget could indicate whether fiscal constraints on India’s sovereign credit profile will ease over the coming years,” it added.


The Union Budget is expected to be presented in the second week of July.


Whether the new government’s FY15 deficit estimate is above or below the previous regime’s estimate of 4.1% of GDP, it will not be the key determinant of India’s credit outlook, Moody’s said. The deficit in 2013-14 fiscal was 4.5%.


Moody’s assigns a ‘Baa3’ rating on India, with a stable outlook.


“India’s high budget deficits are partly due to a large population and low per capita income levels. Low income levels limit the government’s tax revenue base and at the same time drive socio-political pressure to increase government spending on subsidies and economic development,” it added.


However, Moody’s said that other countries with low per capita income have avoided deficits as large as India’s. This suggests that fiscal discipline can improve budget outcomes despite structural challenges.


The report added that wide budget deficits have kept India’s inflation high and contributed to a widening current account deficit between 2011 and 2013, which heightened exchange rate volatility and resulted in higher domestic interest rates.


These trends have exacerbated the slowdown in GDP growth since 2011, it added.


The report outlines the reasons behind India’s high fiscal deficits, provides a comparison between recent fiscal developments in India and in other similarly rated countries, explains how fiscal policy has affected growth and addresses the possible credit implications of the newly elected Government’s forthcoming budget.


Guru Pandyar, Srinivas Sista of Prithvi Info Solutions file for bankruptcy

Guru Pandyar, his wife Arundathi as well as Srinivas Sista and his wife Lalita filed applications for personal bankruptcy at Western District of Washington after being involved in multimillion dollar business fraud

Guru Pandyar (Prasad Rao Pandyar-Guru), his wife Arundathi as well as Srinivas and Lalita Sista, all associated with beleaguered Prithvi Information Solutions have filed for personal bankruptcy in the US.


Both the couples are named in a multi-million dollar business fraud in which Kyko Global Inc, a Canadian company, is seeking $18 million from Prithvi Info Solutions, its promoters and associates.

The Pandyar couple is director/president of Avani Investment Inc while Guru Pandyar himself is an officer of Prithvi Info Solutions and Prithvi Catalytic (now renamed as Abilius) and full time employee of various other affiliated companies of Prithvi Info. On the other hand Sista is named as director/president of Ananya Capital Inc and officer of certain related affiliates and full time employee of various other affiliated companies of Prithvi Info Solutions and Madhavi Vuppalapati, founder of the company.


Both Guru Pandyars and Sistas have filed bankruptcy petition on 17 June 2014 before the Western District of Washington. In most cases, the filing of the bankruptcy case automatically stays certain collection and other actions against the debtor and the debtor's property. Under certain circumstances, the stay may be limited to 30 days or not exist at all, although the debtor can request the court to extend or impose a stay.


The case related to a suit filed by Kyko Global seeking to recover damages of over $18 million from Prithvi Info Solutions, which was once a high flying part of India's software story and had been purchased by many top foreign funds.


As reported by Moneylife in November 2011, Prithvi Info Solutions entered into an agreement with Kyko Global Inc, a Canadian company, for certain factoring services. Prithvi was to sell to Kyko some of its customer account receivables for IT services and authorise direct payment on those customer accounts receivable to be made to Kyko.


When Kyko tried to contact the alleged customer companies directly for payments, it discovered that some of them were associates of Prithvi, who had posed as clients and created and executed the verifications. In order to get the money back, Kyko filed a lawsuit on 16 June 2013 against Prithvi Information Solutions at the US District Court in Seattle.


In the lawsuit, Kyko alleged  that, "To further secure the amounts owed to Kyko, on or about 29 March 2013, Madhavi, Pandyar and Sista agreed on behalf of various affiliated companies of Prithvi Info Solutions to enter into a cross-guarantee promising to pay on demand the full amounts owned to Kyko. The cross-guarantee was signed by Madhavi, Pandyar and his wife, Sista and their affiliated companies, Catalytic, Prithvi Solutions, Prithvi Info Solutions, Inalytix Inc, Ananya and Avani. Each of these cross-guarantors promised 'on a joint and several basis, to guarantee the obligations of each debtor to Kyko in respect to the payments of all the accounts each debtor'."


"In reality the cross-guarantees were yet another component of defendants' fraudulent schemes, and an attempt to conceal the scheme and ultimate truth of the scam from Kyko," the Canadian company alleged in its complaint.


In September 2013, Kyko filed a Writ of Garnishment against Prithvi Information Solutions. Kyko claimed damages of $18,431,765.90 ($18.43 million) inclusive of balance of judgement, prejudgement interest and interest of judgement from 9 June 2013 to 23 September 2013.


In the Writ of Garnishment, Kyko had named Prithvi Information Solutions Ltd, Prithvi Catalytic Inc, Prithvi Information Solutions International LLC, Prithvi Solutions Inc, Inalytix Inc, International Business Solutions Inc, Avani Investments Inc, Ananya Capital Inc, Madhavi Vuppalapati and her husband Anandhan Jagaraman, Guru Pandyar and his wife Arundathi, Srinivas Sista and his wife Lalita, DCGS Inc, EPP Inc, Financial Oxygen Inc, Huawei Latin American Solutions Inc and L3C Inc.


Earlier in April 2014, following directions from a US District Court to recover money, the Sheriff from King County auctioned personal assets of Madhavi Vuppalapati, founder of Prithvi Info, to recover $17 million.


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Jet-Etihad deal under scanner in Singapore

Competition Commission of Singapore feels the Jet-Etihad alliance relates to the provision of international air passenger transport services with a specific focus on the Singapore origin and destination city pairs

The Jet Airways-Etihad deal is facing fresh trouble as the Competition Commission of Singapore has begun a scrutiny of the deal to probe any possible violation of its competition laws.


The deal, which involves purchase of a 24% stake in Naresh Goyal-led Jet for about Rs2,060 crore by Etihad and other tie-ups, has been going through turbulent times ever since it was announced more than a year ago in April 2013.


After months of scrutiny, the deal got consummated late last year after clearance by various Indian regulators, including the Competition Commission of India (CCI) and the Securities and Exchange Board of India (SEBI).


However, the deal has now come under the scanner of the Competition Commission of Singapore, as the alliance 'relates to the provision of international air passenger transport services (and associated support services), with a specific focus on the Singapore origin and destination city pairs'.


The CCS said in a notification that it was seeking feedback from the public and other stakeholders till 11th July, after which it would take its final call on the deal.


The notification was issued “in relation to Section 34 of the Competition Act which prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore’’.


The CCS further said the Jet-Etihad alliance “includes pricing, route and schedule coordination, marketing, code-sharing, networks, customer service and resourcing decisions between the parties.


“The parties envisage that the proposed commercial alliance will result in various efficiencies and synergies. These include lower administrative costs, sharing of joint resources, better customer services and efficient administration of the parties’ respective businesses,” it added.


Abu Dhabi-based Etihad is the national airlines of the United Arab Emirates and it operates to over 85 passenger and cargo destinations in over 50 countries.


Jet is a leading airline in India, operating to over 50 domestic and 20 international destinations.


The two carriers are members of any of the three major international aviation alliances (Star Alliance, Oneworld and Sky Team), CCS said.


The CCS is a statutory board functioning under the purview of the Ministry of Trade and Industry of Singapore.


The Competition Act of Singapore empowers the CCS to investigate alleged anti-competitive activities, determine if such activities infringe the Act and impose suitable remedies, directions and financial penalties.



Nagesh Kini

3 years ago

All the concerns raised by the CCS are absolutely valid.
In the first place why were they not raised by the CCI and SEBI who ought to be the right authorities, since the locus is India.

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