Index of Industrial Production

Index of Industrial Production (IIP)

The Index of Industrial Production (IIP) compares the growth in the general level of industrial activity in the economy with reference to a comparable base year. In order to capture the structural changes in the industrial sector, the base year of the all-India IIP which was commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81 and 1993-94.  The current series of all-India IIP (base 1993-94) was released in May 1998.

In India, the Central Statistical Organisation (CSO) is responsible for compilation and release of the Index of Industrial Production (IIP). This is a monthly index and is intended to measure changes over time in the volume of industrial production. The current series of IIP is based on 538 individual items clubbed into 283 groups of items. The distribution of these items (item groups) and weights (100) among the three sectors covered by the index is as under:

Sector	No. of Items (Item Groups)	Weight
Mining	64(1)	10.47
Manufacturing	473(281)	79.36
Electricity	1(1)	10.17
Total	538(238)	100

The scope of IIP in India is confined to Mining, Manufacturing and Electricity sectors only. Gas production is included in the Manufacturing sector. Distribution of Gas & water is not covered under the existing series of IIP.

As the IIP is a quantitative index, it is based on the production of items being expressed in physical terms. However, the unit of reporting in respect of certain items like Machinery, Machine Tools, Ship Building etc. is in value terms. The monthly figure of production, in such cases is derived by deflating such value figures by appropriate Wholesale Price Index (WPI) of the concerned categories.

The index is a simple weighted arithmetic mean of production relatives calculated by using Laspeyre’s formula

I=Σ(Wi*Ri)/ΣWi,

Where I is the Index, Ri is the production relative of the i-th item for the month in question and Wi is the weight allotted to it based on Gross Output.

The item-wise indices are vertically aggregated at 2-digit of industrial classification based on weighted average, weights are proportionate to Gross Value Added.

The Quick Estimates of IIP are compiled on the basis of data furnished by the source agencies located in various Ministries/Departments/Subordinate Offices of the Government of India. Index is released within six weeks from the reference month and are subsequently revised in the next and the third month based upon the revised production data furnished by the source agencies.

Index of Industrial Production in India is a fixed base (reference) time index and not a chain index. The main advantage of using a fixed reference time index is the computational ease and availability of data. The major hindrance for compiling a chain index in India is the non-availability of timely data for updation of weights on an annual basis.