A grocery shop owner counts rupees notes in the western Indian city of Ahmedabad recently. — Reuters photo

India has prepared a contingency plan for Greece exiting the eurozone and even a collapse of the monetary union, Indian officials said on Tuesday.
The eurozone debt crisis has already put a damper on India’s exports to Europe, the biggest destination for Indian goods, as well as capital inflows into equity and debt markets. Prime minister Manmohan Singh’s government blames Europe’s woes for the slowdown in Asia’s third-biggest economy, although economists say Indian policy inertia is also to blame.
Finance chiefs of the Group of Seven leading industrialised powers was to hold emergency talks on the eurozone crisis on Tuesday in what was seen as a sign of growing global alarm over the threat posed by the strains within the 17-nation union.
‘Yes, India does have a contingency plan. There are different crisis management groups within the government to deal with such a possible scenario,’ Kaushik Basu, the chief economic adviser to finance minister Pranab Mukherjee, told Reuters.
He declined to give details of the plan, but another senior official familiar with the planning said the finance ministry and central bank were prepared to take monetary and fiscal measures if necessary to try to insulate India from the shockwaves of a eurozone collapse.
He did not spell out the measures, but they could include lowering interest rates, which are among the highest in the world, and lowering the amount of money that banks have to keep on deposit in the central bank.
The latter step would allow banks to lend more money to firms to keep hiring and expanding. At the moment the banks are required to keep 4.75 per cent of their deposits with the Reserve Bank of India.
‘We are already preparing technical analysis for different possible scenarios that could impact India trade, stock markets and financial institutions,’ the finance ministry official said, speaking on condition of anonymity because of the sensitivity of the issue.
‘We are facing a fast-evolving situation. The question is not only about the exit of Greece from the eurozone, but whether the eurozone will be able to hold as a fiscal entity,’ he said.
Finance ministry officials said the wider group of G20 major economies, of which India is a leading member, were not planning their own conference call to discuss the crisis but were preparing instead for their summit in Mexico on June 18-19.
‘The next G20 meeting ... is going to be an important signal to the world that we are all together and that the governments will try to sort out,’ the senior official said.