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Index of Industrial Production (IIP) - 2011-12 series

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The all India index of Industrial Production (IIP) 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.

It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.

More details on IIP and its construction may be seen here.


Revision of IIP to 2011-12 base year

The Central Statistics Office (CSO) revised the base year of the all-India Index of Industrial Production (IIP) from 2004-05 to 2011-12 on 12 May 2017. Revisions in the IIP are necessitated to maintain representativeness of the items and producing entities and also address issues relating to continuous flow of production data.

The base year revision captures structural changes in the economy and improves the quality and representativeness of the indices. The revised IIP (2011-12) not only reflect the changes in the industrial sector but also aligns it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Wholesale Price Index (WPI).

IIP in the revised series will continue to represent the Mining, Manufacturing and Electricity sectors. The revised series uses the National Industrial Classification (NIC) 2008 for the purpose of classification of industrial production. Selection of items has been done at 3-digit level of NIC 2008 from the Annual Survey of Industries (ASI) data by ensuring that the selected items cover at least 80 percent of the output of each 3 digit group. The unit coverage of IIP will, as before, cover entities in the organized sector units registered under the Factories Act, 1948.


Weighting diagram

i. Weights at the sectoral level for the new series of IIP have been computed using the sectoral Gross Value Added (GVA) figures from National Accounts Statistics with base 2011-12.

ii. The sectoral weights have been distributed at 2, 3 and 4 digit levels of National Industrial Classification (NIC), 2008 using GVA figures from ASI 2011-12.

iii. The weights at 4 digit level of NIC have been distributed at product level using value of output figures from ASI 2011-12.

iv. In view of heavy subsidies involved in the industry group ‘Petroleum products’, it was decided to adjust the GVA from ASI with the actual subsidies provided by the Government of India to the manufacturers to offset the losses made by them while selling products at a price lower than the actual cost of production. The weights of other industries were appropriately readjusted.


Highlights of the changes introduced as compared to previous series of 2004-05 base

a. The selection of items in the new series has been done at the 3 digit level of NIC for better representation as compared to selection at 2 digit level done in 2004-05 series.

b. The items selected for new series of IIP with base 2011-12 comprised of 809 items, which were clubbed in 405 item groups pertaining to Manufacturing Sector. Mining and Electricity sectors will be represented by a single item index. In comparison, the 2004-05 series basket comprised of 620 items clubbed into 397 item groups for Manufacturing Sector and one item group each for Mining (consisting of 61 items) and Electricity sectors.

c. While 149 new items like Steroids and hormonal preparations, Cement clinkers, Medical/ surgical accessories, Pre-fabricated concrete blocks, refined Palm Oil have been added, 124 items such as Biaxially Oriented Polypropylene (BOPP) Films, Calculators, Colour TV picture tubes, Gutka have been deleted from the 2004-05 series.


Sectoral Composition of the IIP

Sector Base Year 2011-12 Base Year 2014-05
Weight (%) Item Groups Weight (%) Item Groups
Mining 14.373 1 14.157 1
Manufacturing 77.633 405 75.527 397
Electricity 7.994 1 10.316 1
Total 100 407 100 399


d. To reflect the increasing significance of electricity generation from renewable sources, it has been decided to include data on electricity generation figures from these sources in the new series. This inclusion is being done from April, 2014 onwards as monthly data for electricity generation from renewable sources for earlier months were not available.

e. For capital goods, data in the new series will now be captured in terms of ‘work in progress‘ to better represent the growth of capital goods and to avoid reporting of production figures in bulk after the completion of production. For instance in the revised IIP basket, data for 109 item groups is being collected in value terms. Many of these item groups have production span of more than one month for which data will now be reported on ‘work in progress’ so that continuous production is accounted for and will address the fluctuations in production data.

f. The number of source agencies reporting data for compilation of IIP in the new series will be 14 as compared to 15 in the current series[1].

g. In the Mining Sector the coverage has undergone a change on account of the Mineral Conservation and Development (Amendment) Rules, 2016 resulting in 27 non-metallic minerals being designated as minor minerals and which are no longer monitored by Indian Bureau of Mines. The basket of Mining Sector will now comprise of 29 minerals identified by the Indian Bureau of Mines (IBM) as opposed to 61 minerals in the Mining basket of 2004-05 series.

h. The Use-Based Classification (UBC) has been re-framed by replacing “Basic Goods” with “Primary Goods” and introducing a new “Infrastructure/ Construction goods” category. The former change is to improve clarity on the movement of IIP of Primary Goods in industry and the latter aims to address the linkage of production with Infrastructure and Construction sector. A brief table giving the use based classification is given below:


Use-Based Classification

New Series (base 2011-12) Item Group Weight (%) Old Series (base 2004-05) Item Group Weight (%)
Primary goods 15 34.05 Basic goods 88 45.68
Intermediate goods 110 17.22 Intermediate goods 106 15.69
Capital goods 67 8.22 Capital goods 73 8.83
Infrastructure/construction goods 29 12.34 NA -- --
Consumer durables 86 12.84 Consumer durables 43 8.46
Consumer nondurables 100 15.33 Consumer nondurables 89 21.34
Total 407 100 Total 399 100

Notes:

  • NA-Not Applicable
  • Primary goods consist of Mining, Electricity, Fuels and Fertilizers. This category will replace the existing category ‘Basic goods’;
  • Capital goods- e.g. Machinery items;
  • Intermediate goods- e.g. yarns, chemicals, semi-finished steel items, etc.;
  • 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.
  • Consumer durables- e.g. garments, telephones, passenger vehicles, etc.;
  • Consumer nondurables- e.g. food items, medicines, toiletries, etc.
     


i. As in the 2004-05 series, the practice of using Wholesale Price Index (WPI) to deflate items for which data is reported in value terms will continue. However the number of items in the new series for which data will be captured in value terms will be 109 instead of 54 in the 2004-05 series. Wholesale Price Index (WPI) with base 2011-12 has been used for deflation.


Impact of the Revision in base year

IIP is used as core ingredient in the compilation of annual and quarterly national accounts and forecasts of GDP. Furthermore, the availability of IIP on a monthly basis makes it amenable to be used as a reference series in the compilation of cyclical indicators. For instance, National Income Accounts (NIA) uses IIP figures to proxy the growth in unorganized sectors, which is otherwise available only with a gap of 5 years. The impact of revision in IIP would thus get reflected in all those variables which are based on IIP.

For instance, with the revision of IIP to 2011-12 series, the discrepancy between National Income Accounts (NIA) and IIP manufacturing data will narrow: For example, the NIA for 2016-17 has estimated real manufacturing growth at 7.7% while the (old) IIP had suggested zero growth. Now, they are closely aligned since IIP manufacturing growth for 2016-17 is at 5% as per the new series.

If IIP in the new series is revised upwards, then real gross value added (GVA) estimates will also be revised upwards, leading to upward revision in GDP. Some of these issues are clarified in detail by the Chief Economic Advisor, Dr. Arvind Subramanian in his article in Live Mint on 25 May 2017.

The growth rates of the 2011-12 IIP series are not strictly comparable to the previous series as the indices for 2011-12 have been normalized to 100 at a monthly level. There has been an increase in number of factories in panel for reporting data and closed ones have been removed. The item basket has been revised with inclusion of new items and exclusion of old ones. The electricity sector now includes data from renewable energy sources while, the coverage of the mining sector has undergone a change.


1. This is on account of the fact that data on 'Iodised Salt' in the new series will be provided by the Department of Industrial Policy and Promotion (DIPP) as O/o Salt Commissioner is not in a position to supply Salt production data after abolition of Salt Cess Act, 1953 in Finance Bill 2016.


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