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INDEX OF INDUSTRIAL PRODUCTION (IIP)

Written by Talent KAS

Related Topics: Manufacturing Sector, Indian Economy

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According to the data for the “Quick Estimates of Index of Industrial Production” released by the Ministry of Statistics and Programme Implementation (MoSPI), India’s industrial sector production contracted by 1.1 per cent in August 2019, when compared to the production in the same month in 2018.

Negative Growth

  • Industrial production growth for the first time in more than two years has treaded into negative territory.
  • The Index of Industrial Production (IIP) had shown a growth of 4.8% in August 2018.
  • The previous low in IIP was (-) 1.7% in November 2012.

Classsification

  • There are two ways in which IIP data can be viewed.
  • In Sectoral classification, the whole industrial economy is divided into three sectors; the first is manufacturing with a weight of 77.6 per cent in the index, the second is mining with a weight of 14.4 per cent and third is electricity with a weight of 8 per cent.
  • The second way to look at the same production is to look at the way such industrial products are used; this is called the Use-based classification.

Performance

  • Two of the three key constituents of IIP–Manufacturing and Electricity contracted 1.2% and 0.9%, respectively while mining growth was 0.1%.
  • In terms of industries, 15 out of the 23 industry groups in the manufacturing sector have shown negative growth during August 2019 as compared to the corresponding month of the previous year.
  • Infrastructure/ construction goods showed a decline of 4.5% in August 2019 as against a growth of 8% in the corresponding month of 2018.
  • Among the use-based industries, capital goods shrank for the eighth consecutive month by 21%, signalling continuing lack of investment demand.
  • Consumer durables contracted for the third time in a row, by 9.1%, indicating that consumer sentiment remains downbeat.
  • Consumer non-durables and primary goods continued to register positive growth, growing at 4.1% and 1.1% respectively.

Snapshot of Industrial Production

What is IIP?

  • IIP is a composite indicator measuring changes in the volume of production of a basket of industrial products over a period of time, with respect to a chosen base period.
  • It is compiled and published on a monthly basis by the CSO with a time lag of six weeks from the reference month.
  • The eight Core Industries comprise nearly 40.7 % of the weight of items included in IIP.
  • They are Coal, Crude oil, Natural gas, Refinery products, Fertilisers, Steel, Cement and Electricity.
  • Base year for IIP is 2011-2012.

Significance of the Index

  • IIP is the only measure on the physical volume of production.
  • The all-India IIP provides a single representative figure to measure the general level of industrial activity in the economy.
  • It is used by government agencies including the Ministry of Finance, the Reserve Bank of India etc, for policy purposes.
  • It forms a crucial input for compilation of Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.
[Source: The Hindu, Indian Express, Livemint]

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