Restart PSU Privatisation Regardless of Global Shocks: Arvind Panagariya

New Delhi: In a powerful endorsement of structural market updates, Arvind Panagariya, Chairman of the 16th Finance Commission and former NITI Aayog Vice Chairman, has stated that India must urgently revive its disinvestment agenda. Panagariya emphasized that the privatisation of Public Sector Undertakings (PSUs) and Public Sector Banks (PSBs) is absolutely core to the nation's economic progress and must proceed aggressively, completely unfazed by West Asian crises or global geopolitical uncertainties.

Arguing strongly that "half-done reform hurts growth," the eminent economist called on the government to "resuscitate" the process immediately. To maintain momentum, he proposed a significant structural change: creating an independent privatisation ministry, noting that the current Department of Disinvestment has faced challenges in maintaining the necessary pace.

Privatisation: The Engine for India@2047

Panagariya stated that fiscal pressures should not be the driving force behind asset sales. Instead, moving state-owned companies into private hands is a fundamental requirement for modernizing the national economy under the broader India@2047 roadmap.

"I firmly believe that, regardless of fiscal pressures, the privatisation of PSUs and most public sector banks is integral to our economic reforms," Panagariya noted, reinforcing that long-term productivity must take precedence over temporary geopolitical anxieties.

The Truth Behind India's Capital Outflows

When asked about recent market observations showing capital leaving the country despite India enjoying a highly competitive 6-7% GDP growth rate, Panagariya dismissed fears of a structural slowdown and broke down the macroeconomic data:

1. Robust Gross FDI vs. Strategic Private Equity Exits

India’s Gross Foreign Direct Investment (FDI) inflows have maintained a highly positive, consecutive upward trajectory:

• FY24: USD 71.3 Billion

• FY25: USD 80.6 Billion

• FY26: USD 94.5 Billion

He explained that a massive chunk of this historical inbound capital entered India as Private Equity (PE). Given that domestic IPO activity has boomed over the last two years, these PE investors are naturally using public listings to exit their past investments and book profits.

2. Indian Multinationals Reaching Maturity

Furthermore, outward FDI by domestic corporations expanding overseas has accelerated. Panagariya characterized this outward flow as an "excellent development," signaling that Indian firms have reached corporate maturity and are successfully spreading their wings globally.

3. Valuation Corrections & FPI Stabilization

According to recent Reserve Bank of India (RBI) metrics, Foreign Portfolio Investment (FPI) recorded a net outflow of USD 16.5 billion in fiscal 2025-26, heavily driven by the equity segment. Panagariya explained that Indian equities had temporarily become overvalued, triggering a natural market correction. With recent currency adjustments making domestic stocks much cheaper for international investors, he expects these portfolio outflows to calm down in FY27.

The Rupee and the "Rs 100-per-Dollar" Psychological Trap

Addressing currency dynamics, Panagariya noted that real-term overvaluation of the rupee between 2011 and 2015 severely hurt India's merchandise exports.

He explicitly welcomed the recent acceleration in rupee depreciation, viewing it as a healthy, market-driven correction that brings the currency closer to its true value. However, he urged central bank authorities to remain pragmatic:

• The Warning: The RBI must avoid falling into a psychological trap of artificially defending the currency simply to prevent it from crossing the Rs 100-per-dollar mark for too long.

Monsoon Resilience Minimizes Inflationary Risks

Despite lower-than-average monsoon rain forecasts flashing on domestic radars, the Columbia University economics professor remains highly optimistic about India's inflation management and food security.

He highlighted that India's direct economic dependence on erratic rainfall has systemically declined due to robust water reservoir levels, positive sowing sentiment among farmers, and a healthy, robust government buffer stock.