S&P pegs CY10 inflation at 6%, sees GDP at 8% in FY11

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS S&P revises India outlook from negative to stable Nifty BSE | NSE 17/02/12 Are Mutual Funds betting on Nifty?

The government's efforts to cut the fiscal deficit is getting noticed. Rating agency Standard & Poor's has revised the outlook on India to stable from negative.

At the same time, they affirmed the BBB- long-term and A-3 short-term sovereign credit ratings on India. S&P feels India's fiscal position will improve over the next few years and that the economy will clock 8% growth in the next financial year.

In an interview with CNBC-TV18, Takahira Ogawa, Director, S&P Sovereign, spoke about the triggers for the change in the outlook and gave his forecast on inflation and GDP growth in India.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: This is not a change in rating, what are the triggers for the change in outlook?

A: The announcement of the 13th Finance Commission on the medium term fiscal consolidation and also the following day Budget speech by the finance minister which outlined the fiscal consolidation plan by the 13th Finance Commission.

So if all goes well, then the fiscal consolidation will be starting soon from the next fiscal year. If you also look at the macroeconomic environment where India's economic recovery is faster than many people thought, which is also conducive for the better risk ratings.

On the other hand, if you look at it, there is inflation which is a problem. WPI is quite close to 10% in February. So these are things that Reserve Bank of India and the government need to look at to contain the inflationary pressure particularly for crude and so on. So in a sense most of the agencies have to have a fine line between future growth, as well as reduce the inflationary pressure expectations.