Former Niti Aayog vice-chairman Arvind Panagariya has called for reviving the government’s privatization agenda for public sector undertakings (PSUs) and public sector banks (PSBs), arguing that disinvestment remains a key pillar of India’s economic reforms.In an interview with PTI, Panagariya also advocated the creation of an independent privatization ministry to accelerate the government’s disinvestment programme.“I strongly believe that despite fiscal pressures, privatization of PSUs and most public sector banks is an integral part of our economic reforms,” he said.“As a part of our India@2047 movement to modernize the economy, we need to revive PSU and PSB privatization,” he said.Panagariya said aggressive PSU and bank privatization should continue despite the West Asia crisis and broader geopolitical uncertainties.During Panagariya’s tenure as vice-chairman of NITI Aayog, the government’s privatization program was launched in 2016.
FDI remains strong despite capital outflows
Addressing concerns over capital outflows despite India’s relatively strong growth rate, Panagariya said gross foreign direct investment (FDI) inflows reflect investor confidence in the Indian economy.He said gross FDI increased from $71.3 billion in FY24 to $80.6 billion in FY25 and $94.5 billion in FY26.“Clearly, foreign investors are looking very positively at the long-term productivity of investments in India,” said Panagariya, currently an economics professor at Columbia University and chairman of the 16th Finance Commission.He pointed out that a significant portion of gross FDI comes through private equity investment, which naturally exits when companies go public.“A large portion of gross FDI in India has come in the form of private equity. At some point, these investors decide to exit these investments. Typically, this happens when privately owned firms go public through an IPO. Over the past two years, IPO activity in India has picked up, leading to larger-than-usual exits by private-equity investors,” he said.Panagariya also pointed to increasing foreign investment by Indian companies.“If it is a short-term phenomenon, we have nothing to worry about about outflows. If it is a long-term trend, it is an excellent development. It indicates that Indian companies are reaching higher levels of maturity as they spread their wings overseas,” he said.
Rupee appreciation, exports and inflation outlook
Panagariya said foreign portfolio investment (FPI) outflows have also contributed to capital leaving the country in the last two years.“By all accounts, Indian equities were overvalued, which hastened the exits. But now valuations have improved,” he said.“Therefore, I expect this source of outflow to cool down in FY27,” he said.On the rupee, Panagariya said it would be fair to conclude that the currency no longer has much value after the recent depreciation.“I think we have now taken a turn by accelerating the devaluation of the rupee,” said the former vice-chairman of NITI Aayog.He also reiterated that he hopes the RBI will not “fall into the psychological trap of refusing to let the rupee cross the Rs 100 per dollar level for too long”.Citing the impact of an overvalued rupee on exports, he said India’s merchandise exports fell from $310 billion in 2011-12 to $260 billion in 2015-16 and rose to $320 billion in 2019-20.On concerns over below-average monsoon forecast and inflation, Panagariya said India’s dependence on rainfall has reduced over time.“Our reservoirs are in good condition, and based on the increase in sown area compared to last year, farmers have taken a generally optimistic view of the situation. Our buffer stocks are also strong,” he said.“I don’t see any concrete reason to be concerned in this regard,” Panagariya said.