Arvind Panagariya Calls for Dedicated Privatisation Ministry and PSU Reforms

Former Niti Aayog Vice Chairman Arvind Panagariya has made a strong case for reviving India's disinvestment agenda, advocating for the creation of a dedicated privatisation ministry. He argues that the aggressive privatisation of Public Sector Undertakings (PSUs) and Public Sector Banks (PSBs) is essential for the modernisation of the Indian economy as it moves toward the "India@2047" vision.

The Case for a Dedicated Privatisation Ministry

Panagariya, who currently serves as the Chairman of the 16th Finance Commission, believes that disinvestment remains a fundamental pillar of India's economic reform journey. He suggests that a specialized ministry would provide the necessary focus and momentum to accelerate the sale of government stakes in PSUs and banks.

Crucially, Panagariya maintains that this privatisation drive should remain a priority regardless of geopolitical uncertainties, such as the ongoing crisis in West Asia, or domestic fiscal pressures. He views the resuscitating of the privatisation programme as a vital step in restructuring the economy for long-term efficiency.

Addressing concerns regarding recent capital outflows, Panagariya highlighted the resilience of Foreign Direct Investment (FDI) in India. He provided specific data points to show increasing investor confidence, noting that gross FDI rose from $71.3 billion in FY24 to $80.6 billion in FY25, with projections reaching $94.5 billion in FY26.

He clarified that much of the perceived outflow is a natural byproduct of a maturing market. A significant portion of FDI enters through private equity, which frequently exits when domestic companies launch Initial Public Offerings (IPOs). The recent surge in India's IPO activity has naturally led to these exits. Furthermore, he noted that the rise in overseas investments by Indian companies is a sign of corporate maturity, indicating that Indian firms are now capable of competing on a global scale.

Rupee Valuation and Export Competitiveness

Turning to macroeconomic stability, Panagariya commented on the recent depreciation of the Indian Rupee. He suggested that the currency is no longer significantly overvalued and that the recent correction is a necessary move to support the economy.

He specifically cautioned the Reserve Bank of India (RBI) against the "psychological trap" of trying to prevent the rupee from crossing the Rs 100-per-dollar mark for too long. Highlighting the historical link between currency value and trade, he noted that an overvalued rupee has previously hindered merchandise exports, which saw a decline from $310 billion in 2011-12 to $260 billion in 2015-16 before recovering to $320 billion in 2019-20.

Inflation and Monsoon Outlook

Despite concerns regarding below-average monsoon forecasts, Panagariya remains optimistic about India's food security and inflation outlook. He pointed out that India’s dependence on rainfall has decreased due to better water management. With water reservoirs in good condition and robust buffer stocks in place, he believes there is no compelling reason for immediate concern regarding inflationary pressures driven by agriculture.

Key Takeaways