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 India's gross domestic product data indicated that while domestic demand improved in the June quarter, growth was much slower in the sectors hardest hit by the pandemic, signalling deeper scarring and lower trend growth, Nomura said on Friday.

Based on the GDP and high frequency data, domestic demand momentum did improve sequentially in the April-June period, but the slow recovery in the pandemic-hit sectors suggests lower post-pandemic trend growth, Sonal Varma, chief economist (India and Asia ex-Japan) at Nomura, said in a note.

"Despite reopening benefiting the contact intensive services sectors, the underwhelming performance of the most vulnerable segments suggests potentially deeper scarring," Varma said.

She pointed out that three sectors - manufacturing, construction and trade, and hotels, transport and communication - showed disappointing GDP momentum in the June quarter.

Outside of agriculture, these three sectors employ more unorganised sector workers, she highlighted.

"Their slower rebound, despite reopening, suggests firms have either shutdown or are no longer contributing to production, whereas larger firms have thrived and gained market shares."

In light of the above and the incoming cyclical growth headwinds in the form of spillover effects from weakening global growth momentum, and fading pent-up demand, Nomura expects India's GDP growth to slow from 7.0% year-on-year in the current fiscal to 5.2% in the 2023-24 fiscal year.