Arvind Panagariya Urges Dedicated Privatisation Ministry to Boost Reforms

Former Niti Aayog Vice Chairman Arvind Panagariya has called for a strategic revival of India's disinvestment agenda, proposing 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 to achieving the "India@2047" vision of a modernised economy.

The Case for a Dedicated Privatisation Ministry

Panagariya, who currently serves as the chairman of the 16th Finance Commission, believes that the government must accelerate its disinvestment programme to drive economic reforms. He suggests that a specialized ministry would provide the necessary focus to execute the sale of state-owned assets effectively.

According to Panagariya, the privatisation of PSUs and most public sector banks should remain a priority, regardless of geopolitical uncertainties or crises in West Asia. He emphasizes that these moves are integral to the long-term structural transformation of the Indian economy, ensuring that capital is deployed more efficiently in high-growth sectors.

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

He explained that the perceived "outflows" are often a natural part of the investment lifecycle. A significant portion of India's FDI comes from private equity firms that exit their positions when Indian companies go public via Initial Public Offerings (IPOs). Panagariya noted that the recent acceleration in IPO activity has led to more frequent exits by these investors. Furthermore, he viewed the rising overseas investments by Indian companies as a sign of corporate maturity rather than a cause for alarm.

Currency Valuation and Export Competitiveness

On the macroeconomic front, Panagariya touched upon the recent depreciation of the Indian Rupee. He suggested that the currency was previously overvalued and that the recent correction is a necessary step for economic health.

He specifically noted the importance of allowing the Rupee to adjust, even if it means crossing the Rs 100-per-dollar threshold, to support India's merchandise exports. Citing historical data, he pointed out that an overvalued rupee contributed to a decline in exports from $310 billion in 2011-12 to $260 billion in 2015-16, before a subsequent recovery to $320 billion in 2019-20.

Inflation and Monsoon Outlook

Despite concerns regarding below-average monsoon forecasts, Panagariya expressed confidence in India's food security and inflation management. He noted that India's dependence on rainfall has diminished due to better infrastructure, stating that water reservoirs are currently in good shape. With robust buffer stocks and an increase in sown areas, he sees no compelling reason for immediate concern regarding inflation linked to agricultural output.

Key Takeaways