Arvind Panagariya Advocates for a Dedicated Privatization Ministry
Former Niti Aayog vice chairman Arvind Panagariya has urged the Indian government to revive its privatisation agenda for public sector undertakings (PSUs) and public sector banks (PSBs). He emphasized that disinvestment is crucial for India’s economic reforms. In a recent interview with PTI, Panagariya proposed establishing an independent privatisation ministry to expedite the disinvestment process.
Panagariya stated, “I firmly believe that, regardless of fiscal pressures, the privatisation of PSUs and most public sector banks is integral to our economic reforms.” He linked the modernisation of the economy to the India@2047 initiative, asserting that revitalising the privatisation of PSUs and PSBs is essential. He also maintained that aggressive privatisation should proceed despite geopolitical uncertainties, including the ongoing crisis in West Asia. Under his leadership, the government’s privatisation programme was initiated in 2016.
FDI remains strong despite capital outflows
Panagariya addressed concerns regarding capital outflows, asserting that gross foreign direct investment (FDI) inflows indicate strong investor confidence in the Indian economy. He reported that gross FDI increased from $71.3 billion in FY24 to $80.6 billion in FY25 and further to $94.5 billion in FY26. “Clearly, foreign investors continue to see the long-run productivity of investments in India very positively,” he noted.
He explained that a significant portion of gross FDI consists of private equity investments, which typically see exits when companies go public. “In the past two years, IPO activity in India has accelerated, leading to more-than-usual exits by private-equity investors,” he added. Panagariya also highlighted the rise in overseas investments by Indian companies, suggesting that if this trend continues, it would indicate a maturation of Indian firms in the global market.
Rupee correction, exports and inflation outlook
Panagariya pointed out that foreign portfolio investment (FPI) outflows have also contributed to capital leaving India over the last two years. He noted that Indian equities had become overvalued, prompting accelerated exits. “But now a valuation correction has happened,” he stated, expressing optimism that this source of outflows would stabilize in FY27.
Regarding the rupee, Panagariya indicated that recent depreciation suggests the currency is no longer significantly overvalued. He expressed hope that the Reserve Bank of India would avoid the psychological trap of keeping the rupee below the Rs 100-per-dollar mark for too long. He cited the negative impact of an overvalued rupee on exports, referencing a decline in India’s merchandise exports from $310 billion in 2011-12 to $260 billion in 2015-16, before recovering to $320 billion in 2019-20.
On inflation and monsoon forecasts, Panagariya noted that India’s reliance on rainfall has diminished. He stated, “Our water reservoirs are in good shape, and, based on the increase in the area sown over last year, farmers seem to have taken a generally optimistic view of the situation.” He concluded that there is no compelling reason for concern regarding inflation at this time.
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