Another element of non-sustainability concerns non-performance of industry, in particular, manufacturing. Barring ‘community, social and personal services’, service sectors for which we have data are indeed growing at 10 per cent-plus, but the real story is in manufacturing. Manufacturing did 9.1 per cent in 2005-06 and 12.3 per cent in 2006-07, partly due to the export success story. Exports of goods (more relevant than exports of goods and services) grew by 23.88 per cent in dollar terms in 2006-07. The moot question is, how sensitive are exports to rupee appreciation? It is probably true that Indian exports are less sensitive to exchange rate changes than was the case earlier. Manufacturing accounts for a shade less than 80 per cent of industry. Imagine what kind of industry growth we would get if the other components (mining and quarrying, electricity, gas and water supply, construction) did better than the present 5 to 7 per cent; only construction is doing better than this? So another element of the non-sustainability argument should be knocked out, because of the manufacturing performance.

A 9 per cent trend doesn’t mean 9 per cent every year. Just as 6 per cent meant a band between 5.5 and 6.5 per cent, 9 per cent means a band between 8.5 per cent and 9.5 per cent. Back-of-the-envelope counter-factuals show what is possible. Efficient infrastructure will add 1.5 per cent to GDP growth,1 per cent because of power alone. An efficient public sector (including services) will add 1 per cent. Legal reforms (in all its dimensions) will add 1 per cent. Agriculture and allied activities (not just agriculture) can do 4 per cent, instead of the 2.7 per cent in 2006-07.

... contd.