China, India gradually roll back stimulus packages
June 24, 2010

Witnessing continued high levels of growth and stability, signs of China and India gradually rolling back on plump stimulus packages are now evident. While last month India hiked interest rates and tightened monetary policies, China on Tuesday announced it would remove export tax rebates for 406 key commodities by July 15, after it pledged to increase the flexibility of the yuan exchange rate last weekend.

China unveiled a 4 trillion yuan stimulus package and directed nearly 9.6 trillion yuan of new lending into the market last year to prop up the slowing economy while India pumped in three percent of its GDP and loosened entry barriers for foreign investments into the country.

According to analysts, the gradual removal of the stimulus signals confidence by both governments in their domestic economies. While the moves are not expected to hamper exports drastically, they are expected to curb excesses in the economy – tackling inflation in India and high exports in China. Nonetheless, both governments have pledged not to completely remove stimulus packages yet, as they fear a loss of investor confidence.

Announcements from both governments of maintaining some level of the stimulus packages comes amidst pressure from the developed world  which is expected to meet China and India during the G20 to be held this weekend in Toronto. “There is no need to exit the stimulus right away, but you have to think about it and phase it out, because in the short-term the economy is overheating,” New York University economist Nouriel Roubini told Xinhua, adding that there is little possibility that China will witness a drastic economic slowdown like it did in early 2009 amid the global financial crisis.

Adjusting its tax rebate policy for the first time this year Beijing cut commodity export tax rebates particularly on some steel products, nonferrous metals, medicine, chemicals and plastics. The affected export goods, which used to enjoy tax rebate rates ranging from 5 percent to 17 percent are Beijing’s attempt at reigning in the domestic economy, controlling export surpluses to the US and EU and reducing environmental damage. The move is also expected to benefit Asian economies such as India which competed against subsidized Chinese steel.



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