Arvind Panagariya, former vice chairman of Niti Aayog and current chairman of the 16th Finance Commission, has called on the Indian government to revive its privatisation agenda for public sector undertakings (PSUs) and public sector banks (PSBs). In an interview with PTI, Panagariya also advocated the creation of an independent privatisation ministry to accelerate disinvestment, arguing that privatisation remains integral to India's economic reforms.
Privatisation as a Reform Pillar
I firmly believe that, regardless of fiscal pressures, the privatisation of PSUs and most public sector banks is integral to our economic reforms.
Panagariya added that modernisation of the economy as part of the India@2047 movement requires resuscitating PSU and PSB privatisation. He emphasised that aggressive privatisation should continue irrespective of the West Asia crisis and broader geopolitical uncertainties. Under Panagariya's tenure as Niti Aayog vice chairman, the government's privatisation programme was launched in 2016.
FDI Trends and Capital Flows
Addressing concerns over capital outflows, Panagariya noted that gross foreign direct investment (FDI) inflows remain strong. The data shows a steady increase:
| Metric | FY24 | FY25 | FY26 |
|---|---|---|---|
| Gross FDI | $71.3B | $80.6B | $94.5B |
He attributed this to investor confidence in India's long-run productivity. A significant portion of gross FDI comes through private equity investments, which naturally see exits when companies go public via IPOs. Panagariya also pointed to rising overseas investments by Indian companies as a sign of maturity: "If this is a short-term phenomenon, we have nothing to worry about regarding outflows. If it is a long-term trend, it is an excellent development. For it indicates that Indian firms are reaching a high degree of maturity as they are spreading their wings abroad."
Portfolio Flows and Rupee Depreciation
Panagariya said foreign portfolio investment (FPI) outflows contributed to capital leaving the country over the last two years. Indian equities had become overvalued, but a valuation correction has now occurred. He expects FPI outflows to calm down in FY27. On the rupee, he believes the currency is no longer significantly overvalued after recent depreciation: "I think we have now turned a corner by letting rupee depreciation accelerate." He expressed hope that the RBI will not fall into the psychological trap of refusing to let the rupee cross the Rs 100-per-dollar mark for too long.
Exports and Inflation Outlook
Citing the impact of an overvalued rupee on exports, Panagariya noted that India's merchandise exports fell from $310 billion in 2011-12 to $260 billion in 2015-16, before recovering to $320 billion in 2019-20. On concerns over below-average monsoon forecasts and inflation, he said India's dependence on rainfall has declined over time. Water reservoirs are in good shape, area sown has increased, and buffer stock is robust. He concluded: "I do not see a compelling reason to be concerned on this account."
Panagariya, who is also a professor of economics at Columbia University, reiterated that privatisation of PSUs and PSBs remains a key pillar of India's economic reforms, regardless of fiscal pressures or geopolitical uncertainties.
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