Arvind Panagariya Calls for Dedicated Privatisation Ministry and PSU Reform

Former Niti Aayog Vice Chairman Arvind Panagariya has urged the Indian government to accelerate its disinvestment agenda by establishing a dedicated privatisation ministry. He argues that reviving the sale of Public Sector Undertakings (PSUs) and public sector banks (PSBs) is vital for India’s economic modernisation and its long-term "India@2047" vision.

The Case for a Dedicated Privatisation Ministry

Panagariya, who currently serves as the chairman of the 16th Finance Commission, believes that privatisation must remain a central pillar of economic reform, regardless of global geopolitical uncertainties or crises in West Asia. He suggests that an independent ministry focused solely on privatisation would provide the necessary momentum to execute large-scale disinvestment programmes more efficiently.

According to Panagariya, the privatisation of PSUs and most public sector banks is not merely a fiscal tool to reduce debt but an essential step toward modernising the national economy. He emphasizes that this process should continue aggressively to ensure that the government's capital is unlocked and redirected toward productive sectors.

Addressing concerns regarding capital outflows, Panagariya provided a reassuring outlook on Foreign Direct Investment (FDI). He highlighted a significant upward trend in gross FDI inflows, rising from $71.3 billion in FY24 to $80.6 billion in FY25, with projections reaching $94.5 billion in FY26.

He explained that recent outflows are largely a natural byproduct of a maturing market. A significant portion of India's FDI comes via private equity; as Indian companies go public through a surge in IPO activity, these investors typically exit their positions to realise gains. Furthermore, he noted that the rise in Indian companies investing overseas is a sign of corporate maturity rather than a cause for alarm.

Currency Valuation and Export Competitiveness

Panagariya also touched upon the recent depreciation of the Rupee, suggesting that the currency is no longer significantly overvalued. He argued that allowing the Rupee to depreciate is a necessary move to support merchandise exports, which have historically fluctuated—dropping from $310 billion in 2011-12 to $260 billion in 2015-16, before recovering to $320 billion in 2019-20.

He advised the Reserve Bank of India (RBI) to avoid the "psychological trap" of preventing the Rupee from crossing certain thresholds, such as the Rs 100-per-dollar mark, for too long, as an overvalued currency can stifle export growth.

Inflation and Monsoon Outlook

Despite concerns over below-average monsoon forecasts, Panagariya expressed confidence in India's food security. He noted that India's dependence on rainfall has decreased due to better infrastructure, water reservoirs are currently in good shape, and the national buffer stock remains robust. He sees no immediate compelling reason for inflation to spike due to weather patterns.

Key Takeaways