Former Niti Aayog Vice Chairman Arvind Panagariya has called for a revival of 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 called for the establishment of an independent privatization ministry to accelerate the government’s disinvestment programme.“I firmly believe that regardless of financial pressures, privatization of PSUs and most public sector banks is an integral part of our economic reforms,” he said.“Modernizing the economy as part of our India@2047 movement, we need to revive privatization of PSU and PSB,” he added.Panagaria said the privatization of PSUs and banks should continue regardless of the West Asia crisis and broader geopolitical uncertainties.With Panagariya as Vice Chairman of Niti Aayog, the government’s privatization program was launched in 2016.
Foreign direct investment remains strong despite capital outflows
Addressing concerns over capital outflows despite India’s relatively strong growth rates, Panagariya said total foreign direct investment (FDI) inflows continue to reflect investor confidence in the Indian economy.
He pointed out that total foreign direct investment rose from $71.3 billion in FY24 to $80.6 billion in FY25 and then to $94.5 billion in FY26.“It is clear that foreign investors continue to view India’s long-term investment productivity very favorably,” said Panagariya, who is currently a professor of economics at Columbia University and chairman of the 16th Finance Commission.He explained that a large portion of total foreign direct investment comes through private equity investments, which naturally see exits when companies go public.“A large portion of the total FDI in India has come in the form of private equity. At some point, these investors decide to exit these investments. This usually happens when a privately owned company goes public through an initial public offering. In the last two years, IPO activity in India has accelerated, leading to more exits than usual by private equity investors,” he said.Panagariya also pointed to the rise in overseas investments by Indian companies.“If this is a short-term phenomenon, then we have nothing to worry about in terms of outflows. If it is a long-term trend, it is an excellent development. Because it indicates that Indian companies are reaching a high degree of maturity as they spread their wings abroad,” he said.
Rupee correction, exports and inflation expectations
Foreign portfolio investment outflows also contributed to capital leaving the country over the past two years, Panagariya said.“By all accounts, Indian stocks have become overvalued, accelerating the exit process.
But now there has been a correction in the assessment.”“So I expect this source of outflows to subside in FY27,” he added.Regarding the rupee, Panagariya said it would be reasonable to conclude that the currency is no longer significantly overvalued after the recent decline in its value.“I believe we have now turned a corner by allowing the rupee depreciation to accelerate,” the former Niti Aayog vice chairman said.He also stressed that he hopes the RBI does not fall into the psychological trap of refusing to let the rupee cross the Rs 100 per dollar mark for too long.Pointing out the impact of the overvalued rupee on exports, he noted that India’s merchandise exports declined from $310 billion in 2011-2012 to $260 billion in 2015-2016 and rebounded to $320 billion in 2019-2020.On concerns about below-average monsoon forecasts and inflation, Panagariya said India’s dependence on rainfall has decreased over time.He added, “Our water tanks are in good condition, and based on the increase in cultivated area over the past year, farmers seem to have a generally optimistic view of the situation. Our reserve stock is also strong.”“I see no compelling reason to worry about this account,” Panagaria added.