India : Growth pace likely slowed in April-June

India’s economic growth likely lost some momentum in the April-June quarter on cutbacks in domestic and global demand, a Reuters poll showed.

The poll also found that economists expect the newly-passed goods and services tax (GST) will take time to have an impact on gross domestic product growth.

For April-June, the median forecast of 40 economists was for GDP growth of 7.6 percent from a year ago, slower than the 7.9 percent in the previous quarter.

The slower pace would still be rapid, by any standard. China reported 6.7 percent annual growth for April-June, and the Philippines posted 7.0 percent.

Much of India’s slowdown was attributed to slumping demand. On an annual basis, the country’s exports fell for 18 consecutive months until June, when they finally rose. Business surveys have pointed to slowing foreign and domestic demand.

The latest reform from the government, the goods and services tax, should transform the country into a common market and is widely expected to add up to two percentage points to the GDP growth pace after implementation.

But the median forecast of 13 economists who answered an extra question on the tax change was that GST will have no major addition to the country’s GDP during the fiscal year starting April 2017, when the measure is slated to take effect.

The standard rate for GST of more than 17-18 percent “could be negative for the services economy, which is more than 60 percent of GDP,” said Abhishek Upadhyay, economist at ICICI Securities.

“Net impact may be negative initially, even as medium term impact will be undoubtedly positive,” he said.

But in the fiscal year 2018-19, GST is expected to increase the GDP growth rate by 0.75 percentage points.

“Near-term costs may exceed the benefits, though investment ramp-up and streamlining benefits will follow,” said Vishnu Varathan, economist at Mizuho.