Arvind Panagariya Urges Dedicated Ministry to Fast-Track Privatisation

Former Niti Aayog Vice Chairman Arvind Panagariya has called for a strategic revival of India's disinvestment agenda, advocating for a dedicated privatisation ministry to accelerate economic reforms. He argues that the sale of Public Sector Undertakings (PSUs) and Public Sector Banks (PSBs) is essential for India’s modernization and its journey 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 the government must decouple its privatisation programme from broader geopolitical uncertainties, such as the West Asia crisis. He posits that the privatisation of PSUs and the majority of public sector banks should remain a non-negotiable pillar of economic reform, regardless of immediate fiscal pressures.

By creating an independent ministry focused solely on this mandate, the government could provide the institutional focus required to manage complex exits and asset transfers. This move is seen as vital to modernising the economy and ensuring that state-owned enterprises contribute effectively to the nation's long-term productivity.

Addressing concerns regarding capital outflows, Panagariya provided a reassuring perspective on Foreign Direct Investment (FDI). He highlighted a consistent upward trajectory in gross FDI, noting a rise from $71.3 billion in FY24 to $80.6 billion in FY25, with projections reaching $94.5 billion in FY26.

He explained that the recent perceived outflows are largely a function of the booming Indian IPO market. As private equity investors see companies go public, they naturally exit their positions to realise gains. Furthermore, he noted that the increasing trend of Indian companies investing overseas is a sign of "maturity," signaling that domestic firms are now capable of competing and spreading their wings globally.

Currency Valuation and Export Competitiveness

On the macroeconomic front, Panagariya addressed the volatility of the Indian Rupee. He suggested that the currency 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 Rs 100-per-dollar mark for an extended period.

He underscored the importance of a competitive currency for trade, citing historical data where an overvalued rupee contributed to a dip in merchandise exports—which fell from $310 billion in 2011-12 to $260 billion in 2015-16—before eventually recovering to $320 billion in 2019-20.

Outlook on Inflation and Monsoon Dependency

Despite concerns regarding below-average monsoon forecasts, Panagariya remains optimistic about India's food security and inflation outlook. He pointed out that India’s dependency on rainfall has structurally declined due to better water management. With water reservoirs in good condition, a robust buffer stock, and an increase in sown area compared to last year, he sees no compelling reason for immediate alarm regarding inflationary pressures driven by agriculture.

Key Takeaways