Arvind Panagariya Calls for Dedicated Privatisation Ministry to Boost Reforms

Former Niti Aayog Vice Chairman Arvind Panagariya has urged the Indian government to revive its disinvestment agenda, advocating for a dedicated privatisation ministry to accelerate reforms. He argues that the strategic sale of Public Sector Undertakings (PSUs) and public sector banks (PSBs) is essential for India's economic modernisation and its "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 should remain a priority regardless of fiscal pressures or geopolitical uncertainties, such as the ongoing West Asia crisis. He suggests that a specialized ministry would provide the necessary focus to execute the disinvestment of PSUs and most public sector banks.

According to Panagariya, these moves are not merely about raising capital but are integral pillars of structural economic reform. By resuscitating the privatisation programme—which saw significant momentum during his tenure at Niti Aayog starting in 2016—India can better position itself for long-term productivity and efficiency.

Decoding FDI Inflows and Capital Outflows

Addressing recent concerns regarding capital outflows, Panagariya provided a nuanced view of India’s Foreign Direct Investment (FDI) landscape. He highlighted a steady upward trajectory 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 clarified that much of the perceived "outflow" is actually a natural lifecycle of private equity. As Indian companies go public through an accelerated IPO market, private equity investors typically exit their positions to realize gains. Furthermore, he noted that the rise in overseas investments by Indian companies is a sign of corporate maturity rather than a cause for alarm. Regarding Foreign Portfolio Investment (FPI), he expects outflows to stabilize by FY27 following a necessary valuation correction in Indian equities.

Rupee Depreciation and Export Competitiveness

On the macroeconomic front, Panagariya touched upon the importance of a flexible exchange rate. He suggested that the Indian rupee is no longer significantly overvalued following recent depreciation and encouraged the Reserve Bank of India (RBI) to avoid the "psychological trap" of preventing the rupee from crossing the ₹100-per-dollar mark for extended periods.

He cited historical data to support the need for a competitive currency, noting that India's merchandise exports dropped from $310 billion in 2011-12 to $260 billion in 2015-16 before recovering to $320 billion in 2019-20. A more realistic rupee valuation could provide the necessary impetus for export growth.

Inflation and Monsoon Outlook

Finally, Panagariya dismissed immediate fears regarding food inflation linked to monsoon forecasts. He noted that India's dependence on rainfall has decreased, water reservoirs are currently in good condition, and the country maintains a robust buffer stock, providing a safety net against potential weather volatility.

Key Takeaways