Index of Industrial Production (IIP)

The Index of Industrial Production (IIP) measures short-term changes in industrial activity in the country. It is a composite indicator expressed in terms of an index number which measures the short term changes in the volume of production of a basket of industrial products during a given period with respect to the base period.

The base year is always given a value of 100. The current base year for the IIP series in India is 2011-12. So, if the current IIP reads as 116 it means that there has been 16% growth compared to the base year.

IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries and National Accounts Statistics are available. However, IIP is considered to be one of the lead indicators for short-term economic analysis because of its strong relationship with economic fluctuations in the rest of economy.
Most of services, like transport, storage, communication, real estate, insurance and banking are industry dependent and are considerably influenced by industrial performance.

Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference month.

The index is compiled using figures of mining, manufacturing and electricity sectors only.

Since industrial activity contributes about a quarter of our gross domestic product (GDP), this indicator is keenly followed by economists, markets, and policymakers. A higher growth in industrial activity, reflected by movement in the index, will naturally lead to better growth for overall GDP. In recent times, there has been sluggishness in industrial activity due to a variety of factors, which has taken a toll on the overall growth numbers as well.

The items in the index are given different weights according to their relevance and this is revised from time to time along with the base year in order to reflect the changing nature of the economy. The data is released on a monthly basis. The variation is gauged year-on-year. For example, growth in the index for April 2016 will be based on the index value for April 2015.

At present, the index taps changes in the volume of production in 809 items falling in 407 different item groups. The inclusion of the products in the index depends on a certain contribution to the total output of the country.

The time lag for each report: Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference month. i.e., at the time of the release of IIP data, quick estimates for the relevant month along with revised and final indices of previous two months respectively, (on the basis of updated production data) are released.

For suppose, if IIP data is released in August 2^nd week it could be quick estimates of June month (six weeks distance), and also revised estimates of May and final estimates of April.

There is also a bit of controversy on the reliability of the data as some components of the index, such as capital goods, have shown very high volatility in the recent past. Also, some sharp revision in data has also led to economists questioning the reach of data collection and reliance on such data for policymaking purposes.

In the absence of any other robust source of gauging the industrial activity, IIP remains an important indicator for policymaking in the country.