Last week saw the release of the Index of Industrial Production (IIP), which recorded a contraction of 1.6% in January.

Index of Industrial Production (IIP)

• Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy.
• The IIP number measures the industrial production for the period under review, usually a month, as against the reference period.
• IIP is a key economic indicator of the manufacturing sector of the economy.
• There is a lag of six weeks in the publication of the IIP index data after the reference month ends.
• IIP index is currently calculated using 2011-2012 as the base year.

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

There are 6 sub-categories:

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

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.

Try this PYQ:

Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

(a) Coal production

(b) Electricity generation

(c) Fertilizer production

(d) Steel production

Who uses IIP data?

• The factory production data (IIP) is used by various government agencies such as the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, among others for analytical purposes.
• The data is also used to compile the Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.

IIP base year change:

• The base year was changed to 2011-12 from 2004-05 in the year 2017.
• The earlier base years were 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.

IIP vs ASI

• While the IIP is a monthly indicator, the Annual Survey of Industries (ASI) is the prime source of long-term industrial statistics.
• The ASI is used to track the health of industrial activity in the economy over a longer period. The index is compiled out of a much larger sample of industries compared to IIP.
• The IIP essentially tracks the change in the volume of production in Indian industries.

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