“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.”
Calculated and published by the Central Statistical Organisation (CSO) every month.
It is a composite indicator of the general level of industrial activity in the economy
The scope of the Index of Industrial Production (IIP) as recommended by the United Nations Statistical Office (UNSO) includes mining, manufacturing, construction, electricity, gas and water supply.
But due to constraints of data availability, the IIP compiled in India has excluded construction, gas and water supply sectors.
Eight Core Sectors
The eight core industries which comprises 40.27% of the weight of items included in the Index of Industrial production, is compiled and published monthly by Ministry of Commerce and Industry and comes with a time lag of one month.
The base year for the index of the eight core industries is 2011-12.
The eight core sector industries in decreasing order of their weightage:
Refinery Products > Electricity > Steel > Coal > Crude Oil > Natural Gas > Cement > Fertilizers.
Calculation:
The IIP is a quantitative measure, with the production of goods represented in physical quantities. However, for certain categories such as machinery, machine tools, and shipbuilding, the reporting unit is expressed in value terms.
The IIP is calculated using a simple weighted arithmetic mean of production relatives, based on Laspeyre’s formula.
To account for price increases and ensure accuracy, production data for certain items are adjusted using the Wholesale Price Indices (Base 2011-12), provided by the Office of Economic Adviser, Ministry of Commerce and Industry, before calculating the index.
Base year:
The base year is assigned a value of 100.
For the IIP series in India, the base year is 2011-12.
Therefore, if the current IIP value is 116, it indicates a 16% increase in production compared to the base year.
Purpose and Importance:
Provides insights into the overall economic health and industrial performance.
Aids policymakers in making informed decisions regarding economic and industrial policies.
Helps investors and businesses make strategic decisions based on industrial growth trends.
The IIP remains a crucial tool for assessing industrial performance and making economic decisions. Ongoing improvements in data accuracy and sectoral representation are essential for enhancing the effectiveness of the IIP in economic analysis and policy-making.
