What is IIP (Index of Industrial Production) ? – Definition, Details & Calculations

What is IIP?

The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing

The Index of Industrial Production (IIP) can be defined as a combined indicator, expressed in the form of an index number. Basically it is a combination of measure of performance of major industrial sectors in the form of an index number.

The Central Statistical Organisation (CSO) under the “Ministry of Statistics and Programme Implementation” is responsible for the compilation and publication of the Index of Industrial Production (IIP). IIP is published monthly, six weeks after the reference month ends. So, October data will be published around 12^th December.

IIP is indexed against a base year.

What is the meaning of base year in the Index of Industrial Production (IIP);

1. The base year for IIP is always given a value of 100.
2. The base year of IIP has been revised to 2011-2012 (in the month of May)
3. This has been done in order to bring the IIP data at par with GDP data (GDP base year has been revised to 2011-2012).

What base year shows: Suppose the value of IIP in Jan 2018 was 133, this means that there has been a 33% (133-100) increase in the industrial activities in India as compared to the industrial activities in 2011-2012.

The level of the Index of Industrial Production (IIP) is an abstract number, the magnitude of which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time. IIP index is one of the key tools to measure the level of industrial activity in Indian economy.

IIP data is a very important indicator to the Government for planning purposes and is also used by various organisations like Industrial Associations, Research Institutes, Financial Institutes and Academicians. Stock markets in India also react very seriously to this number.

Scope of IIP

As per United Nations Statistics Division: the scope of IIP should include

1. Manufacturing
2. Mining
3. Electricity
4. Gas Steam
5. Air Conditioning Supply
6. Water Supply
7. Waste Management, Sewerage, and Remediation Activities

But due to data availability constraints for items (4) to (7), they are not included in the Indian IIP. Thus sector-wise Indian IIP comprises of the following three broad sectors:

1.Manufacturing – There are various items whose industrial outputs are tracked under this sector. These items are selected such as they cover min 80% of output of manufacturing industry as per the classification by National Industrial Classification. Based on this, 809 items were identified. These items were grouped into 405 item groups after detailed consultation with the source agencies which were to provide monthly production data for these items on a regular basis.

2.Mining – Indian Bureau of Mines(IBM) has identified 29 minerals,using which a composite index for mining is computed and be provided to CSO every month.

3.Electricity – Central Electricity Authority (CEA) compiles a composite index, based on total electricity generation figure across the country.

This is how their allocation is currently. This table also shows how allocation has slightly changes as the base year was changed because of few items were added & few were deleted in the basket of industrial goods as per the current relevance. In all, 149 new items were added in the new IIP 2011-12 data series, while 124 of them were deleted.

Use Based Classification of IIP

The use-based classification of IIP comprises of the following categories of representative goods:

1. Primary goods- consisting of Mining, Electricity, Fuels and Fertilizers.
2. Capital goods- e.g. Machinery items;
3. Intermediate goods- e.g. yarns, chemicals, semi-finished steel items, etc.;
4. Infrastructure/ Construction goods – e.g. paints, cement, cables, bricks and tiles, rail materials, etc. This category has been constituted to categorize items which were neither part of Consumer durables nor Intermediate goods. This categorization assumes significance in wake of growing importance of infrastructure sector;
5. Consumer durables- e.g. garments, telephones, passenger vehicles, etc.; and
6. Consumer nondurables- e.g. food items, medicines, toiletries, etc.

This is how use based allocation is currently –

IIP Latest Data – Released on Dec 12, 2018

Here is the latest data of IIP released by Dept of Statistics & Programme Implementation of Govt of India –

Is IIP data completely reliable?

Data has improved specially with change in base year and changing the basket to make it more relevant to today’s reality. Data is definitely an excellent parameter to show us our industrial good growth esp. manufacturing & infra oriented, there are still some difficutlies –

1. It takes manufacturing data only from companies in the organised sector. However, in India, 75 percent of the manufacturing jobs come from the unorganized sector.
2. Doubt remains about source of data. Data is sourced from 16 different government agencies listed below –
   1. Department of Industrial Policy and Promotion,
   2. Indian Bureau of Mines
   3. Central Electricity Authority
   4. Joint Plant Committee
   5. Ministry of Petroleum and Natural Gas
   6. Office of Textile Commissioner
   7. Department of Chemicals and Petrochemicals
   8. Directorate of Sugar
   9. Department of Fertilizers
   10. Directorate of Vanaspati, Vegetable oils and Fats
   11. Tea Board
   12. Office of Jute Commissioner
   13. Office of Coal Controller
   14. Railway Board
   15. Office of Salt Commissioner
   16. Coffee Board

These source agencies receive their monthly feed through “mail, fax or questionnaires” from designated factories. But many of these factories often skip reporting in their data. In fact, a 60 per cent response rate is considered pretty good. These gaps are filled by using past trends etc. which can lead to errors and may not be always correct.