Index of Industrial Production [UPSC Economy Notes]

The economy is an important part of the UPSC syllabus. It is a big chunk of the syllabus for the General Studies Paper III in the IAS exam. In this article, we give you a detailed description of the important economic term, the Index of Industrial Production (IIP).

Index of Industrial Production

• The Index of Industrial Production (IIP) is an index that indicates the performance of various industrial sectors of the Indian economy.
• It is 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.

Official Definition – As given by CSO

“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.”

Index of Industrial Production Latest Updates –

• The Index of Industrial Production (IIP), witnessed a growth of 1 per cent in December 2020.
• The Index of Industrial Production (IIP) for the month of September 2019 has contracted by 4.3 % as compared to the month of September 2018.
  • This is the first time after November 2012 that all three broad-based sectors (Mining, Manufacturing, and Electricity) have contracted and the lowest monthly growth in the 2011-12 base year series.

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IIP – Explanation

• This index gives the growth rates of different industry groups of the economy over a specified time period.
• The industry groups that it measures are classified under the following:
  • Broad sectors like manufacturing, mining, and electricity.
  • Use-based sectors like capital goods, basic goods, intermediate goods, infrastructure goods, consumer durables, and consumer non-durables.
• The eight core industries of India represent about 40% of the weight of items that are included in the IIP. The Eight Core Sectors/Industries are:
  • Electricity
  • Steel
  • Refinery products
  • Crude oil
  • Coal
  • Cement
  • Natural gas
  • Fertilizers
• The United Nations Statistics Division (UNSD) recommends including quarrying, gas steam and air-conditioning supply, sewerage, water supply, waste management, and remediation in the broad sectors. But this is not done due to the problems in data availability on a monthly basis for all these sectors. So, the data has been restricted to mining, electricity, and manufacturing.

Index of Industrial Production Importance

• The Index is used by government agencies and departments such as the Finance Ministry and the RBI for policymaking.
• It is also used for estimating the Gross Value Added of the manufacturing sector quarterly.
• Also, the Index is used by business analysts, financial experts, and the private industry for multiple purposes.
• It is the only measure of the physical volume of production.
• It is also extremely useful for the projection of advance GDP estimates.

IIP Latest Change

• The latest change in the IIP was made in 2017.
• Any index is to be subject to changes and modifications like changing the base year, including more items in the basket, etc.
• The new and current base year for IIP is 2011 – 12. The previous base year was 2004 – 05.
• Another change was the inclusion and deletion of certain items in the data series.
• Some items introduced:
  • Refined palm oil
  • Surgical accessories
  • Cement clinkers
• Some items removed:
  • Chewing tobacco
  • Toothbrush
  • Calculators
  • Fans
  • Watches
  • Pens
• This is the 9th base year revision ever since IIP was first published in 1950. The first base year was 1937.

Core industries in the IIP

The following table represents the weight of the eight core industries in the IIP.

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