The hurdles in the way of 12 per cent growth have been documented often enough. Some are specific to sectors, others are generic. In the generic lot, there are issues connected with indirect taxes (including compliance costs), procedural hassles, interest rates (and availability of capital), physical infrastructure (especially roads and power), labour laws and procedures (not just the Industrial Disputes Act) and lack of skills. Which of these has changed dramatically enough to jack up growth? Road connectivity has improved, and the performance of railways. But these are probably not that important. Perhaps even more significantly, capital has become cheaper, from around 2001.

This facilitated restructuring, although that began in the second half of the 1990s, and also contributed to greater investments, though not always of the greenfield variety. Stated differently, Indian manufacturing has simply become more competitive. The paranoia over the Chinese threat has disappeared. Not that manufacturing can ever be competitive across the board. The shake-out is not yet over. But there are companies that are now globally competitive and are moving to global scales of operation. This is reflected in export performance. Forget export of services and consider export of goods alone, in which almost 75 per cent consists of manufactured exports. From April to September 2006, over the same period last year, exports of goods have increased by 37.3 per cent in dollar terms.

I am inclined to think that at least 3 per cent of the growth in manufacturing is because of this export performance. If we take this away, manufacturing growth will drop from 11 per cent-plus 8 per cent-plus. If Indian manufacturing has demonstrated that it is capable of taking on the world and is doing so well in global markets, imagine what would happen if we could ease some of those domestic constraints. Indeed, it is because of constraints like physical infrastructure that the south and west and coastal regions perform better. If we had reliable state-level export data, one could probably establish that western and southern growth is largely because of exports. Let’s export manufactures. But let’s import some better procedures and infrastructure, physical and social.

... contd.