India is expected to see a modest recovery in GDP growth at 6.6% for the April—June quarter as compared to 6.1 per cent in January—March, which was affected by demonetisation, 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 down marginally. 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% year-on-year in Q2 (April—June) compared to 6.1% in January—March, which was affected by demonetisation. However, in the second half of 2017, we expect growth to accelerate sharply to 7.4%,” 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. On the monetary policy front, Nomura said the Reserve Bank of India is expected to maintain the status quo on interest rates.

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