India is expected to see a modest recovery in GDP growth at 6.6 per cent for the April-June quarter as compared to 6.1 per cent in January-March, which was affected by demonetization, says a Nomura report.

Economic activity in the country, which had lost some momentum in the run up to the Goods and Services Tax (GST) rollout, has started to recover, according to Nomura.

The report said while consumption and services growth indicators (especially transportation) bounced back in July, industry, investment and external sector data remain weak, or have slowed at the margin.

However, a growth recovery is expected by year-end, aided by remonetisation and improved financial conditions.

"Given the impact of the GST and in line with our indicators, we expect only a modest recovery in GDP growth to 6.6 per cent year-on-year in Q2 (April-June) compared to 6.1 per cent in January-March, which was affected by demonetisation. However, in the second half of 2017, we expect growth to accelerate sharply to 7.4 per cent," it said in a research note.

According to Nomura, both urban and rural consumption indicators bounced back in July. While, diesel consumption and consumer credit also picked up, confirming that underlying consumption demand is robust.

However, there were the weakness in investments, industry and external demand, it added.

On the monetary policy front, Nomura said the Reserve Bank of India is expected to stay on a prolonged pause.

The Reserve Bank in its policy review meet this month has lowered its key lending rate by 0.25 per cent, a move which is likely to translate into lower interest rates for home, auto and other loans as also boost economic activity.

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