IIP: how this index is calculated, and what it says about factory

Headline : IIP: how this index is calculated, and what it says about factory output

Details :

Context:

  • Recently, the Central Statistics Office (CSO) has released “Index of Industrial Production (IIP)”.

What is IIP?

  • IIP is an index detailing out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing.
  • It is a short term indicator of industrial growth till the results from Annual Survey of Industries (ASI) and National Accounts Statistics (Example: GDP) are available.
  • It measures the changes in the volume of production of a basket of industrial products during a given period with respect to the volume of production in a chosen base period.
  • The base year for the current series of IIP is 2011-12.

Note: Base Year is an year used as the beginning or the reference year for constructing an index, and which is usually assigned an arbitrary value of 100.

Who releases IIP?

  • It is compiled and published by the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation.
  • It is published monthly with a time lag of six weeks from the reference month

Significance of IIP

  • It is used by government agencies including the Ministry of Finance, the Reserve Bank of India etc, for policy purposes.
  • The all-India IIP is a crucial input for compilation of Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.
  • It is also used extensively by financial intermediaries, policy analysts and private companies for various analytical purposes.
  • It is crucial considering the IIP is the only measure on the physical volume of production.

Change in base year

  • In 2017, the change in the base year was done to 2011-12.
  • The previous changes in base years were done in 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.

Does a change in base year makes a significant changes to the IIP growth figures?

  • A change in the base year does not end up making too much difference to the IIP growth figures.However, the bigger impact is on account of the difference in the constituent items of the index and weights assigned to each of them.

Difference between Annual Survey of Industries (ASI) and Index of Industrial Production (IIP):

Both the ASI and IIP are used to capture and monitor the Industrial Output data. However, there are following differences among the two

ASI

  • ASI is calculated on an annual basis
  • ASI is a record-based survey of establishments registered under the Factories Act, 1948 in which the sampling frame and the sampled establishments undergo significant changes.
  • It is conducted under the Collection of Statistics Act, since 1959.
  • Objective is to obtain comprehensive and detailed statistics of industrial sector for estimating the contribution of registered manufacturing industries as a whole to the national income.
  • ASI data is based on the actual book of accounts and other documents maintained by registered factories.
  • Growth rates in ASI are derived on the basis of Value Added (Output – Input).
  • The ASI captures information of new items and factories (whereas the IIP does not).
  • ASI establishments cover both large and smaller units

IIP

  • IIP is calculated on a monthly basis.
  • IIP is based on a fixed set of items and factories chosen in the base period
  • Data for IIP are collected by various source agencies under different Acts/statutes.
  • It is compiled on the basis of data sourced from 16 ministries/ administrative departments.
  • Growth rates in IIP are based on volume of production.
  • The IIP is based on a much smaller sample of factories as compared to that of ASI.
  • Establishments selected in IIP are generally larger in size

Therefore, the growth rates in IIP are lower as the smaller units that have a thinner base and hence show higher growth.

Manufacturing sector in India

Steps to boost manufacturing

  • National Manufacturing Competitiveness Council (NMCC): It has been set up by the Government to provide a continuing forum for policy dialogue to energise and sustain the growth of manufacturing industries in India.
  • Make in India Initiative.
  • National Investment and Manufacturing Zones (NIMZs).
  • Skill India

Section : Economics

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