Arvind Panagariya Urges Dedicated Privatisation Ministry to Drive Growth

Former Niti Aayog Vice Chairman Arvind Panagariya has called for a strategic revival of India's disinvestment agenda, suggesting the creation of a dedicated privatisation ministry. He argues that the sale of Public Sector Undertakings (PSUs) and public sector banks (PSBs) is a non-negotiable pillar for the "India@2047" economic modernisation movement.

The Case for a Dedicated Privatisation Ministry

Panagariya, currently the Chairman of the 16th Finance Commission, emphasizes that the government must accelerate its privatisation programme despite global geopolitical uncertainties or West Asian crises. He posits that an independent ministry would provide the focused institutional framework required to streamline the exit of the state from non-core sectors.

According to Panagariya, the privatisation of most PSUs and public sector banks is integral to deep-rooted economic reforms. He suggests that resuscitating this agenda is essential for modernising the Indian economy and ensuring that capital is deployed more efficiently across the nation.

Addressing concerns regarding capital outflows, Panagariya highlighted the resilience of Foreign Direct Investment (FDI) in India. He noted a consistent upward trajectory in gross FDI inflows: rising from $71.3 billion in FY24 to $80.6 billion in FY25, and projected to reach $94.5 billion in FY26.

He clarified that recent outflows are often a natural byproduct of a maturing ecosystem. A significant portion of India's FDI comes from private equity (PE) firms. As Indian companies undergo successful Initial Public Offerings (IPOs), these PE investors frequently exit their positions to realise gains. Furthermore, he viewed the rising overseas investments by Indian firms as a positive sign of corporate maturity rather than a cause for alarm.

Currency Valuation and Export Competitiveness

The economist also provided insights into the Indian Rupee and its impact on trade. Panagariya suggested that the rupee is no longer significantly overvalued following recent depreciation. He advocated for a pragmatic approach from the Reserve Bank of India (RBI), suggesting the central bank should not succumb to the "psychological trap" of preventing the rupee from crossing the Rs 100-per-dollar mark for extended periods.

He pointed to historical data to justify 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 weaker rupee, he argues, can act as a catalyst for export growth.

Inflation and Monsoon Outlook

Despite concerns regarding below-average monsoon forecasts, Panagariya remains optimistic about India's food security and inflation stability. He noted that India's reliance on rainfall has diminished due to better infrastructure, mentioning that water reservoirs are currently in good shape. With robust buffer stocks and an optimistic outlook from farmers regarding sowing areas, he does not see a compelling reason for immediate inflationary alarm.

Key Takeaways