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Index of Industrial Production (IIP) "EMPOWER IAS"

Index of Industrial Production (IIP) "EMPOWER IAS"

In news:

  • 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

  • The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
  • It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation.
  • IIP is a composite indicator that measures the growth rate of industry groups classified under:
    • Broad sectors, namely, Mining, Manufacturing, and Electricity.
    • Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
  • Base Year for IIP is 2011-2012.
  • The eight core industries  of India represent about 40% of the weight of items that are included in the IIP.

 

Significance of IIP :

  • 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.

 

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.

 

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.