See Q1 GDP at 5.1%; food inflation a worry: Moody's

She says at current ‘stable’ grade of Baa, Moody’s had already factored in the fact that India was poised for a cyclical upturn, which is what is happening now. For a further re-rating, three main things need to change – sticky food inflation needs to come down, trade deficit needs to narrow further and India’s infrastructure needs to improve. “While the government has made several announcements on these issues, no result is seen yet. Once these government initiatives are executed, there may be a re-rating,” she told CNBC-TV18.

She expects industries to grow between 3-4 percent, in line with consensus estimate at 4.1 percent.

Below is the verbatim transcript of Atsi Sheth's interview with Latha Venkatesh and Sonia Shenoy.

Latha: An upgrade of 5.1 percent from Moody’s is always pleasant but our poll is throwing up an average of almost 5.9 percent with quite a few people sitting at six percent for the Q1 itself, why are you so moderate?

A: The common thread between our fairly conservative forecast and the numbers that you have just quoted is that this is a turn around in growth, that growth is going to be significantly higher in the first quarter this fiscal year compared to the last quarter of the last fiscal year and that is the common thread.

As to why our number is a little bit more conservative, it takes the risks into account, the risk that agricultural output, even though this is a pre-monsoon data, of course this is April to June, that the agricultural output might be a little bit subdued and services output; there are uncertainty there. We all agree that industrial output will show the most pick up compared to its past performance but on services and agricultural we are a little bit more conservative.

Sonia: If you can just give us more numbers on the agri output itself, when you say subdued what do you mean, because our poll is throwing up a growth of 2.8 percent in the agri division, what are you expecting this time?

A: We are a little bit lower than that. We think it will be about two percent, but again I don\\'t think that 2.8 percent number is too optimistic, it could come out closer to that and certainly we see a little bit upside on the agricultural side. Again these are all pre-monsoon numbers, so I don't think that monsoon performance will affect them at all.

Latha: One big positive or tailwind for this economy has been the fallen crude prices, are you now more confident of that 4.1 percent fiscal deficit number that the Budget threw up?

A: A couple of things including the crude oil prices will affect that 4.1 percent and certainly all those things are positive. One is yes, if oil prices remain at current levels and fall further even that would benefit the Budget expenditure side certainly. The other is the exchange rate staying either fairly stable or as some expect even appreciating a little bit, that will also benefit the Budget.

And the most important is this turnaround in growth because if we do see growth turning around we are also likely to see revenues also bouncing up and that will again affect the way the Budget pans out. So yes, all three trends are in a positive direction.