INDEX OF INDUSTRIAL PRODUCTION (IIP)

2. About the Index of Industrial Production (IIP)

• The Index of Industrial Production (IIP) is a macroeconomic indicator that measures the changes in the volume of production of a basket of industrial goods over some time.
• It is a composite index that reflects the performance of the industrial sector of an economy.
• The IIP is compiled and released by the Central Statistical Organisation (CSO) in India.
• The IIP is calculated using a Laspeyres index formula, which means that the weights assigned to different industries are based on their relative importance in a base year. The current base year for the IIP is 2011-12.
• The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
• The eight core industries are Refinery Products, Electricity, Steel, Coal, Crude Oil, Natural Gas, Cement and Fertilizers.
• It covers 407 item groups included into 3 categories viz. Manufacturing, Mining and Electricity.
• The IIP is a useful tool for assessing the health of the industrial sector and the overall economy.
• It is used by policymakers, businesses, and investors to track trends in industrial production and make informed decisions.

3. Significance of IIP

The IIP is a significant economic indicator that provides insights into the following aspects

• The IIP reflects the growth or decline of the industrial sector, which is a major contributor to overall economic growth.
• The IIP measures the level of industrial activity, indicating the production volume of various industries.
• The IIP serves as a guide for policymakers to assess the effectiveness of economic policies and make informed decisions.
• Businesses use the IIP to assess market conditions, make production plans, and evaluate investment opportunities.
• The IIP influences investor sentiment as it reflects the overall health of the industrial sector.

4. Service Sector and IIP

• The IIP does not include the service sector. It focuses on the production of goods in the industrial sector, such as manufacturing, mining, and electricity.
• The service sector is measured by a separate index, the Index of Services Production (ISP).
• The IIP data is released monthly by the Central Statistical Organisation (CSO) in India.
• The data is released with a lag of six weeks, allowing for the collection and compilation of information from various industries.

5. Users of IIP Data

The IIP data is used by a wide range of stakeholders, including:

• Government agencies and central banks use the IIP to assess economic conditions and formulate policies.
• Companies use the IIP to evaluate market trends, make production decisions, and assess investment opportunities.
• Investors use the IIP to gauge the health of the industrial sector and make investment decisions.
• Economic analysts and researchers use the IIP to study economic trends and develop forecasts.
• The IIP is widely reported in the media and is of interest to the general public as an indicator of economic performance.

• Factory output gained on the back of a 9.3 per cent increase in manufacturing, which accounts for 77.6 per cent of the weight of the IIP (Index of Industrial Production).
• Manufacturing output had grown by 5 per cent in July and had contracted by 0.5 per cent in August 2022.
• In absolute terms, it improved to 143.5 in August from 141.8 in July and 131.3 in the year-ago period.
• As per the IIP data, seven of the 23 sectors in manufacturing registered a contraction in August, with furniture, apparel, and computer and electronics among the significant non-performers.
• Among the performing sectors, fabricated metal products, electrical equipment and basic metals fared better.
• Garments and chemicals witnessed negative growth. This can be attributed to lower growth in exports as these two are export-dependent.
• The electronics industry also witnessed negative growth, which again can be linked to existing high stocks and lower export demand.
• In terms of the use-based industries, consumer durables output returned to positive territory for the second time this fiscal with 5.7 per cent growth in August, reflecting a pickup in consumption demand.
• However, it came on the back of a 4.4 per cent contraction in consumer durables output in the year-ago period.
• Primary, infrastructure/ construction, and capital goods recorded double-digit growth rates in August at 12.4 per cent, 14.9 per cent and 12.6 per cent, respectively.