Former NITI Aayog Vice Chairman Arvind Panagariya has strongly called for the Indian government to revive the privatization of Public Sector Undertakings (PSUs) and Public Sector Banks (PSBs), asserting its fundamental role in India's ongoing economic reforms. Speaking recently, Panagariya also suggested the establishment of an independent privatization ministry to significantly accelerate the disinvestment process, noting that the current Department of Disinvestment has not maintained the necessary pace.
Call for Accelerated Disinvestment
Panagariya's advocacy for aggressive privatization remains steadfast, even amidst global geopolitical uncertainties and the West Asia crisis. He firmly believes that irrespective of fiscal pressures, the privatization of PSUs and most PSBs is an integral component of India's broader economic reform agenda. This move, he argues, is crucial for modernizing the economy as part of the India@2047 vision, a long-term goal for the nation's development.
During his tenure at NITI Aayog, Panagariya spearheaded efforts towards PSU disinvestment, initiating its privatization program back in 2016. He highlighted that an independent ministry could provide the focused attention and streamlined decision-making required to overcome existing hurdles and expedite the sale of government assets.
Addressing Economic Concerns
Panagariya also addressed several economic concerns, including capital outflows, foreign investment trends, the rupee's depreciation, and below-average monsoon forecasts, stating that recent trends do not warrant alarm.
Foreign Direct Investment
Regarding capital outflows, Panagariya noted that gross Foreign Direct Investment (FDI) has remained robust, countering concerns about capital leaving India despite a 6-7 percent growth rate. He cited an increase in gross FDI from USD 71.3 billion in FY24 to USD 80.6 billion in FY25, and further to USD 94.5 billion in FY26. He explained that foreign investors continue to hold a positive long-term view of India's investment productivity. Some outflows, he clarified, stemmed from private equity exits, a natural occurrence when privately-owned firms go public through IPOs, which has increased with recent IPO activity. Additionally, accelerating FDI by Indian firms abroad contributes to capital outflow, which Panagariya views as a sign of Indian companies maturing and expanding globally.
Rupee Depreciation
Panagariya acknowledged increased foreign portfolio investment exits over the past two years, contributing to dollar outflows, partly due to Indian equities becoming overvalued. However, he noted that a valuation correction has since occurred. The significant depreciation of the rupee has made Indian equities more attractive to foreign investors, and he anticipates these outflows to ease in FY27. He believes the rupee is no longer overvalued, having corrected its earlier overvaluation. He recalled the rupee's strength in 2002-03 and 2011-12, which led to real overvaluation and impacted merchandise exports. The recent acceleration in rupee depreciation, he suggests, marks a turning point and expressed hope that the Reserve Bank of India (RBI) would not resist its potential crossing of the Rs 100-per-dollar mark for too long.
Monsoon Forecast and Food Security
On the forecast of below-average monsoon rains, Panagariya reassured that India's economic reliance on rainfall has significantly decreased over the years. He pointed to healthy water reservoir levels, an increase in sown area, and robust buffer stocks as reasons not to be overly concerned about the monsoon's impact on the economy.
Overall, Panagariya's message underscores the strategic importance of reviving PSU and PSB privatization for India's economic trajectory, while advocating for a holistic perspective on recent economic indicators.