GS-3, Indian Economy, Uncategorized

All about revision of Index of Industrial production (IIP)

Definition: The Index of Industrial Production (IIP) is an index which shows the growth rates in different industry groups of the economy in a stipulated period of time. The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly basis.

Description: IIP is a composite indicator that measures the growth rate of industry groups classified under,

1. Broad sectors, namely, Mining, Manufacturing and Electricity

2. Use-based sectors, namely Basic Goods, Capital Goods and Intermediate Goods.

Currently IIP figures are calculated considering 2004-05 as base year.

What is core industries in IIP ?

The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial Production (IIP)

  1. Coal production (weight: 4.38 %)
  2. Crude Oil production (weight: 5.22 %)
  3. The Natural Gas production (weight: 1.71 %)
  4. Petroleum Refinery production (weight: 5.94%)
  5. Fertilizer production (weight: 1.25%)
  6. Steel production (weight: 6.68%)
  7. Cement production (weight: 2.41%)
  8. Electricity generation (weight: 10.32%)

Recently Central Statistics Office has updated its base year to 2011-12. (Earlier it was 2004-05)

New products have been included in the items basket, and those that have lost their relevance deleted. Renewable energy, for example, has been included in the electricity index. The expanded coverage — 809 items against 620 earlier, and a larger number of factories — is expected to make the IIP more representative.

Advantages of revision

The average industrial output growth of the last five years (2011-12 to 2016-17) in the old IIP is 1.38%, in the updated series it is 3.8%.

The average five-year growth of manufacturing sector has improved to 4.04% against 0.94% in the old IIP.

The bad news is that the output growth of the infrastructure and construction sector has slowed down from 5.7% in 2013-14 to 3.8% in 2016-17.

The main driver of growth in the economy remains consumption. Consumer durables grew 6.2% and non-durables 9% in 2016-17 (Reason being Seventh Pay Commission award).

The base years of all the major macroeconomic indicators, the Gross Domestic Product (GDP) and the Wholesale Price Index, are now aligned — 2011-12. The revised IIP will be plugged into the GDP series.

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