'India preparing for euro zone meltdown'

India has prepared a contingency plan for Greece exiting the euro zone and even a collapse of the monetary union, Indian officials said on Tuesday.

The euro zone 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.

Finance chiefs of the Group of Seven leading industrialised powers will hold emergency talks on the euro zone 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 Ministry told Reuters.

He declined to give details of the plan, but another senior official familiar with the planning said the Finance Ministry and the Reserve Bank of India (RBI) were prepared to take monetary and fiscal measures if necessary to try to insulate India from the shockwaves of a euro zone 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 percent of their deposits with the RBI.

“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 euro zone, but whether the euro zone will be able to hold as a fiscal entity,” he said.