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Moody’s Investors Services on Tuesday said the escalating second wave of coronavirus infections in India present a risk to its growth forecast of 13.7% for FY22 as the re-imposition of virus management measures will curb economic activity and could dampen market and consumer sentiment.

“The announced countermeasures to combat the second wave – some of which are due to remain in place at least until the end of April – risk weakening the economic recovery. However, the targeted nature of containment measures and rapid progress on vaccinating the population will mitigate the credit-negative impact," it added.

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India has registered more than one lakh daily covid cases consecutively for the last seven days till Monday, pushing the active caseload past the one million mark. Many states, including Maharashtra, Delhi, Chhattishgarh, Punjab and Haryana, have imposed night curfews, partial lockdowns and reduction in working hours to limit spread of the virus. Economists believe contact intensive services may be the first casualty of the second wave of the pandemic. In March, both manufacturing and services PMI declined, reflecting early impact of the surge in infections.

The International Monetary Fund (IMF) on Tuesday upgraded its FY22 growth projection for India to 12.5% from 11.5% estimated in January, but cautioned that the forecast hasn’t factored in the severe downside risks arising from the country’s ongoing second wave of covid-19.

Retail and recreation activity across India had dropped by 25% as of 7 April compared with 24 February, according to Google mobility data. This was mirrored in the Reserve Bank of India’s March consumer confidence survey which showed a deterioration in perceptions of the economic situation and expectations of decreased spending on nonessential items.

Moody’s said given the focus on “micro-containment zones" to deal with the current wave of infections, as opposed to a nationwide lockdown, it expects that the impact on economic activity will be less severe than that seen in 2020. “India's very low coronavirus death count (only about 170,179 deaths have been recorded as of 12 April) and relatively very young population also help mitigate risks. GDP is still likely to grow in the double digits in 2021 given the low level of activity in 2020," it added.

The rating agency said vaccination will be a key element in managing the second wave as authorities balance virus management against maintaining economic activity.

India began its vaccination drive in mid-January and had administered over 108 million doses of the coronavirus vaccine as of 12 April, becoming the fastest country to reach that threshold so far. “However, a shortage of vaccines and India's nearly 1.4 billion person population, which includes many people living in rural, more remote locations, could slow progress of the vaccine rollout," Moody’s said.

India has prioritized domestic vaccine distribution, delaying exports, amid the resurgence in coronavirus infections. On 11 April, the government also placed a temporary prohibition on the export of remdesivir, which is used in the treatment of coronavirus patients.

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