Context

• India’s statistics ministry generates only one high-frequency gauge of economic activity. And that lone barometer, the index of industrial production (IIP), is completely broken.

What is IIP?

• The Index of Industrial Production (IIP) is an index that indicates the performance of various industrial sectors of the Indian economy. It is a composite indicator of the general level of industrial activity in the economy.

How is IIP calculated?

• IIP is calculated as the weighted average of production relatives of all the industrial activities. In the mathematical calculation Laspeyre’s fixed base formula is used.

What are the Core Industries in India?

• The main or the key industries constitute the core sectors of an economy.
• In India, there are eight sectors that are considered the core sectors.
• They are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.

Which has highest weightage in IIP?

• The eight core sector industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

Why is IIP important?

• IIP is the only measure on the physical volume of production. It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc. for policy-making purposes. IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates.

Who releases IIP data?

• The IIP data is compiled and published by CSO every month.
• CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).
• The IIP index data, once released, is also available on the PIB website.

How useful are monthly IIP figures to draw a conclusion about India’s growth?

• IIP figures are monthly data and as such it keeps going up and down.
• In fact, the release calls them “quick estimates” because they tend to get revised after a month or two.

IIP Index Components

• Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
• The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
• Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.

Basket of products

• Primary Goods (consisting of mining, electricity, fuels and fertilisers)
• Capital Goods (e.g. machinery items)
• Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
• Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
• Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
• Consumer Non-durables (e.g. food items, medicines, toiletries, etc)

IIP base year change

• The base year was changed to 2011-12 from 2004-05 in the year 2017.

Way ahead

• IIP remains extremely relevant for the calculation of the quarterly and advance GDP (Gross Domestic Product) estimates.

Mains question

Q. What do you understand by IIP? How it helps us to understand economic health?

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