Greek Contagion – India's Chief Economic Advisor thinks that India might "Benefit" as a "Safe Haven" if Crisis is "Contained"

India’s chief economic advisor thinks that India could benefit from increased capital flows if the Greek crisis is contained at the present level. How he thinks that the crisis can be contained at which level and at what level India will benefit is not specified. These type of subjective statements makes no sense.A Contagion does not have controlled levels .I think the issues with the crisis are structural and will take a long time in getting resolved.Plus India faces  more dangers from the crisis than any benefit

1. Trade problems due to lowering of European and world demand
2. Currency Problems leading to lower exports
3. Slowing of World GDP

Even if we get more capital inflows in the market that won’t benefit as it will lead to asset price inflation . Even to think that India will benefit from this contagion as a “safe haven” is pure folly . With Naxalite,Pakisatan and a myriad other problems, foreign investors who think of India as a “safe haven” would be crazy

India may gain from moderate debt crisis in Europe: Basu – Economic Times

Chief economic advisor Kaushik Basu has said the ongoing sovereign debt crisis in Europe may, in fact, turn advantageous for the country’s capital markets if it is contained at the present level.

But if the crisis snowballs into an overall global meltdown, then we cannot remain immune to its impact as the country is now integrated with the world, Basu told PTI in an interview.

“If a crisis in another industrialised country is a relatively small crisis, in fact, we get some very unusual advantage. More money flows into India,” Basu said, adding people look for safer havens to park their money.

However, if the trouble gets very big, people get nervous about the world economy itself and there may be an outflow of money as people then put money into gold and other assets, rather than into stock markets anywhere in the world, he pointed out.

Basu’s views are corroborated to a large extent by the movement of foreign capital into the country since the start of 2010, the time when fears of sovereign debt crisis in Europe, particularly in Greece, began to come appear.

There was net inflow of foreign institutional funds into the domestic capital markets since the start of 2010 till April-end, which was Rs 54,606 crore and the stock market barometer Sensex rose 93.9 points in the four months to close at 17,558.71 on April 30.

The domestic markets got battered last week as sentiment was hit due to the reports of worsening sovereign debt crisis in two other EU nations– Portugal and Spain– on the one hand and the Greek problem escalated on the other.

In the first week of May, the FIIs were net sellers in the market, decreasing their exposure by Rs 840 crore. Though the net outflow may not be large, the impact on the domestic market was massive.

Basu said the country is now sufficiently interconnected with the world that a serious global crisis will wash ashore into our country and we will have to be prepared for that.

The chief economic advisor, however, said, “if the astronomical figure of over USD 140 billion bailout package helps contain the crisis and stop it at Greece, I think we will be fine. In fact, we may get some additional capital inflows in search of a safer haven.”