Index of Industrial Production
Index of Industrial Production (IIP) measures the quantum of changes in the industrial production in an economy and captures the general level of industrial activity in the country. It is a composite indicator expressed in terms of an index number which measures the short term changes in the volume of production of a basket of industrial products during a given period with respect to the base period.
The base year is always given a value of 100. The current base year for the IIP series in India is 2011-12. So, if the current IIP reads as 116 it means that there has been 16% growth compared to the base year.
IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries and National Accounts Statistics are available. However, IIP is considered to be one of the lead indicators for short-term economic analysis because of its strong relationship with economic fluctuations in the rest of economy. Most of services, like transport, storage, communication, real estate, insurance and banking are industry dependent and are considerably influenced by industrial performance.
Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference month. i.e., at the time of release of IIP data, quick estimates for the relevant month along with revised and final indices of previous two months respectively, (on the basis of updated production data) are released.
For eg. the quick estimate of IIP of February 2017 along with revised indices of January 2017 and final indices of November 2016 has been released on 12 April 2017. It may be noted that the revised indices (first revision) in respect of January 2017 may undergo final (second) revision along with the release of IIP for the month of April 2017.
The general scope of IIP, as recommended by United Nations Statistics Division includes Mining & Quarrying, Manufacturing, Electricity, Gas steam, Air conditioning supply, Water supply, Sewerage, Waste management and Remediation activities. But, in India, due to constraints of data availability and other resources, the index is compiled using figures of mining, manufacturing and electricity sectors only.
In India IIP uses base year weights, which remain fixed through the entire period of the series and uses a combination of volumes and deflators in its compilation. While the usual preference is for volumes (like numbers, tonnes), deflators (a measure of price which when used as a denominator to divide the value of production, gives a volume based measure as result) are used for items/sectors which are not normally amenable to a volume based measure. The number of such items in the new 2011-12 series for which data will be captured in value terms will be 109 (instead of 54 in the 2004-05 series). The commodity specific Wholesale Price Index is used as deflators.
ASI Vs IIP
The Industrial Output data is captured and monitored, primarily, through two statistical activities (i) Annual Survey of Industries (ASI) on an annual basis and (ii) Index of Industrial Production (IIP) on a monthly basis. The ASI is conducted under the Collection of Statistics Act, since 1959, to obtain comprehensive and detailed statistics of industrial sector with the objective of estimating the contribution of registered manufacturing industries as a whole to the national income. The IIP is compiled on the basis of data sourced from 15 ministries/ administrative departments. Data for IIP are collected by various source agencies under different Acts/statutes. Data received then undergo scrutiny and validation before finalisation. The output figures for compilation of IIP are authenticated by respective line Ministries/ departments and the ASI data is based on actual book of accounts and other documents maintained by registered factories.
NIA Vs IIP
IIP is used as core ingredient in the compilation of annual and quarterly national accounts and forecasts of GDP. Furthermore, the availability of IIP on a monthly basis makes it amenable to be used as a reference series in the compilation of cyclical indicators.
National Income Accounts (NIA) uses IIP figures to proxy the growth in unorganized sectors, which is otherwise estimated only with a gap of 5 years.
While the National Income Account (NIA) estimates are based primarily on the financial accounts of companies the IIP data are based mainly on volume data obtained from establishments.
Categorization of IIP
i) Sectoral classification
Industrial production for the purpose of IIP is divided into three sectors, i.e, Mining, Manufacturing and Electricity. In 'Sectoral' classification, relative weights of Manufacturing, Mining and Electricity are 75.5%, 14.2% and 10.3% respectively.
ii) Use-based classification
In addition to the industry wise indices/growth rates, the users also require the indices in respect of different use-based categories, i.e., basic goods, capital goods, intermediate goods, consumer durables and consumer nondurables. Recognizing the above requirements, compilation of use- based indices was started in the 1980-81 base series of IIP from the year 1990-91 onwards. In “Use Base” classification, relative weights of Basic Goods, Capital Goods, intermediate goods and Consumer Goods are 45.68%, 8.83%, 15.68 and 29.81% respectively.
Computation of IIP
IIP is generally computed as the weighted average of production relatives of all the industrial activities. Here, Laspeyre’s fixed-base formula is used for the calculation of the index, which can be expressed mathematically as follows:
- Lt= ∑RiWio /∑Wio *100
- Where Wi0 = Weight of the ith item in the base year
- Ri = Production relative of the ith item= Pit /Pi0
- Pit = Production of the ith item in the period t
- Pi0= Production of the ith item in the base period
Source agencies for data
IIP are now being made available to the CSO by fourteen (14) source agencies viz. (1) Indian Bureau of Mines (IBM), (2) Directorate of Sugar & Vegetable Oils, (3) Tea Board, (4) Coffee Board, (5) O/o the Textile Commissioner, (6) O/o the Jute Commissioner, (7) O/o the Coal Controller, (8) M/o Petroleum & Natural Gas, (9) Joint Plant Committee (Iron & Steel), (10) Railway Board, (11) D/o Industrial Policy & Promotion, (12) D/o Chemicals & Petrochemicals, (13) D/o Fertilizers and (14) Central Electricity Authority.
History & Origin
The all India IIP was first complied by Office of Economic Adviser, Ministry of Commerce & Industry with the base year 1937. With the establishment of Central Statistics Office (CSO) in 1951, the compilation of index was shifted to CSO.
The base year of the index has been subsequently revised to 1946, 1951, 1956, 1960, 1970, 1980-81 and 1993-94. The index with base year 2004-05 was released on 10th June 2011(with the Index figures of April 2011). The present series has a base year of 2011-12 and was launched on 12 May 2017.
More details on IIP(2011-12) series may be seen here.
Revisions in the IIP are necessitated to maintain representativeness of the items and producing entities and also address issues relating to continuous flow of production data. In the past, such changes were effected at the time of a revision in the base year. With the release of the new series of IIP (base 2011-12), an institutional mechanism has been established for facilitating dynamic revision of the item list of products and the panel of factories, through a Technical Review Committee, chaired by Secretary, Ministry of Statistics & Programme Implementation. This Committee will meet at least once a year for identifying new items that need to be included in the item basket and removing those that have lost its relevance in the industrial sector or are no longer being produced.
IIP (2004-05) series
The data for IIP (2004-05) was compiled using data received from 15 source agencies viz. (i) Department of Industrial Policy & Promotion (DIPP); (ii) Indian Bureau of Mines; (iii) Central Electricity Authority; (iv) Joint Plant Committee, Ministry of Steel; (v) Ministry of Petroleum & Natural Gas; (vi) Office of Textile Commissioner; (vii) Department of Chemicals & Petrochemicals; (viii) Directorate of Sugar & Vegetable Oils; (ix) Department of Fertilizers; (x) Tea Board; (xi) Office of Jute Commissioner; (xii) Office of Coal Controller; (xiii) Railway Board; (xiv) Office of Salt Commissioner; and (xv) Coffee Board.
IIP (2004-05) covered 682 items comprising Mining (61 items), Manufacturing (620 items) & Electricity (1 item). The weights of the three sectors were 14.16%, 75.53% and 10.32% respectively and were on the basis of their share of GDP at factor cost during 2004-05. Further this IIP series uses 2-digit level of National Industrial Classification (NIC-2004). The difference between 2004-05 series and 2011-12 series may be seen here.
State level IIPs
The CSO currently compiles the all India IIP. There is no comparable IIP created for each state. The Indices generated by State /UTs lacks comparability due to differences in the choice of base year, item basket, periodicity for releasing indices, methodology, data sources used etc. In the absence of comparable data, annual manufacturing sector Gross State Domestic Product (GSDP) is often taken as the proxy for status of industrial production in the state.
Need for comparable state level IIPs to facilitate comparative studies on state wise industrial performance was felt for quite some time and an assurance was given in the Parliament in April 1993 by the Prime Minister to take efforts to make available comparable state level IIPs. A technical Advisory Committee constituted in 1995 for this purpose had made certain recommendations.
Based on the committee recommendations some of the States, through their Directorates of Economics & Statistics (DES), started compilation of monthly IIPs with base 1993-94. Tamil Nadu released indices from April 1994 to March, 2006. Andhra Pradesh released the provisional indices from April, 1998 to March, 2006. West Bengal released the provisional indices from January, 1999 to March, 2006. Goa compiled monthly lIPs for 1994-95 to 2001-2002. Delhi compiled monthly lIPs for 1999-2000 to 2005-06. Haryana compiled provisional monthly lIPs for the years 1996-97 to 2001 -02. Assam compiled indices for January, 2001 to March, 2006. Rajasthan compiled indices for Jan 2001 to December, 2005.
Technical assistance in the form of training was provided by CSO to State DES officers for compilation of State IIP with new base year 2011-12, in the Zonal review workshops held in Kolkata during August 2016 to September 2016.Issues related to compilation of State level IIP was also deliberated with senior officers of State Governments in the National Consultation Meeting chaired by Secretary, MoSPI on 20 December, 2016 in Delhi.
- Annual Survey of Industries (ASI)
- Index of Industrial Production (2011-12)
- Index of Eight Core Industries
- Wholesale Price Index