NEW DELHI: The twin moves of transferring RBI surplus to the Union government and merger of banks will further aggravate the slowdown the Indian economy is facing, CPM general secretary Sitaram Yechury said on Tuesday.
Speaking at a debate hosted by the Financial Accountability Network, he said the government should ensure large-scale public investments to create jobs in order to face the economic crisis.
"Look at the Indian economy. It is not a slowdown. In my opinion, we are on the brink of a recession... What is required is large-scale public investments that will create jobs and put some purchasing power in the hands of people to spur the domestic demand," the Left leader said.
He said the transfer of RBI surplus to the government would "destabilise" the central bank of the country, make the domestic economy more vulnerable and expose it to the global recession.
"This will expose us to further vulnerability, which is likely to hit sooner than later as per international economic trends," Yechury said.
Last month, the Reserve Bank of India (RBI) agreed to transfer Rs 1.76 lakh crore to the government this fiscal. It includes Rs 1.23 lakh crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised economic capital framework adopted at the bank's board meeting.
Yechury batted for boosting domestic demand through public investments.
"What is required is to boost domestic demand. It makes sense in the international economic atmosphere, where world trade is shrinking. Unless we focus on domestic economy and boosting domestic demand, there is no way we can recover from the present slowdown and recession that we have entered in," he said.
He claimed that the government's decision to merge public sector banks (PSBs) will lead to an easier credit flow to corporates, which will "again default" and cause mounting non-performing assets.
Last week, the government announced consolidation of 10 PSBs into four mega state-owned lenders, including amalgamation of the Oriental Bank of Commerce and the United Bank of India with the Punjab National Bank.
"It was a move out of desperation with the hope that it will generate access to credit, greater investment and greater growth to reverse what is happening now," Yechury said, referring to the transfer of RBI surplus to the government and the bank mergers.
"This is a disastrous move both put together -- RBI reserves and the bank mergers," he added.
The Left leader said the move will fuel "insecurity" in the domestic financial system and lead to higher levels of "crony capitalism".