Index of Industrial Production (IIP)

Index of Industrial Production (IIP)

• Index of Industrial Production (IIP) is an index that shows the performance of different industrial sectors of the Indian economy.
• The IIP is estimated and published on a monthly basis by the Central Statistical Organisation (CSO) .
• As an all India index, it gives general level of industrial activity in the economy.
• According to the CSO. “It is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.”

Importance of Index of Industrial Production

• The IIP is used by public agencies including the Government agencies/ departments including that in the Ministry of Finance, the Reserve Bank of India etc. for policy purposes.
• The all-India IIP data is used for estimation of Gross Value Added of Manufacturing sector on quarterly basis.
• Similarly, the data is also used extensively by analysts, financial intermediaries and private companies for various purposes.

• Any index is to be updated regularly by including new items, updating the base year, changing the methodology in the estimation of index to reflect the changing environment.
• The modification made by the CSO is to bring a new base year of 2011-12. Besides the new base year, different sectors have been amended based on National Industrial Classification (NIC), 2008.
• National Industrial Classification (NIC) is an indigenized version of the International Standard Industrial Classification (ISIC) developed by the United Nations Statistics Division (UNSD).

The main changes brought in the new series of IIP

• Base year has been updated to 2011-12 by upgrading the item basket and weighting structure.
• National Industrial Classification (NIC) 2008 has been adopted in the new series of IIP.
• Items in the item basket are selected at NIC 3-digit level to increase representativeness.
• Number of item groups has increased from 399 to 407out of which 149 are new/ emerging items.
• Electricity generation from renewable energy sources has been included under the ‘Electricity’ sector.
• Weights are rationalised to appropriately to reflect the actual value addition of each sector incorporating effects of subsidies.
• New use-based classification has been adopted with following categorisation: (i) Primary goods, (ii) Capital goods, (iii) Infrastructure/ construction goods, (iv) Intermediate goods, (v) Consumer durables, and (vi) Consumer non-durables.
• A review mechanism has been introduced through a Technical Review Committee.

Core industries in the IIP

• The Eight Core Industries comprise 27 % of the weight of items included in the Index of Industrial Production (IIP). These industries are:
• Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
• Refinery products has the largest weights among the core industries.

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