Index of Industrial Production(IIP)- What is it?

On 12th Jan 2011, everyone was waiting for the IIP numbers to be announced by the Central Statistical Organization (CSO) of the Ministry of Statistics & Program Implementation, especially the stock market. What is it and why it is so important? Let us see what this IIP is all about and then the Nov IIP numbers.

 

The Index of Industrial Production (IIP) compares the growth in the general level of industrial activity in the economy with reference to a comparable base year. As you know, to have any index measured, we need to have some base year to see where the current position is.

History of the base year for IIP

 
In order to capture the structural changes in the industrial sector, the base year of the all-India IIP which was commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81 and 1993-94. The current series of all-India IIP (base 1993-94) was released in May 1998.
 
It covers the following sectors (the weightage is given along the sector)
 
Mining………………..10.47%
Manufacturing………79.36%
Electricity…………… 10.17%
 
Who compiles IIP?
 
The Quick Estimates of IIP are compiled on the basis of data furnished by the source agencies located in various Ministries/Departments/Subordinate Offices of the Government of India.
 
When is this IIP released?
 
The index is released within six weeks from the reference month and are subsequently revised in the next and the third month based upon the revised production data furnished by the source agencies.
 
What does the IIP number tell for Nov ?
 
India’s Index of Industrial Production, or IIP, in November fell sharply due to poor patronage by consumer non-durables, intermediate goods, manufacturing and power sectors. However, the industrial growth for the eight months of this fiscal witnessed a higher growth rate.
 
Data released (12th Jan 2011) by the Central Statistical Organization (CSO) of the Ministry of Statistics & Program Implementation showed the IIP for November had a growth rate of only 2.7%,sharply down from the 11.3% for the corresponding month last year, and lower than the growth rate for October.The cumulative index of industrial production for the first eight months of this fiscal grew to 9.5% from the 7.4% in the corresponding period of last fiscal.
 
The data kept the estimated growth rate for October revised upwards to 11.3% from the earlier provisional figure of 10.8%. During November, growth rate of the manufacturing sector, with a weightage of 79.4%, fell drastically by 2.3% from the 12.3% in the November of the preceding year. The power sector’s growth increased by 4.6% from the 1.8% for the corresponding month last year. The mining sector’s figure declined by 6% from the 10.7% in November last year.(Source : RTT News).
 
With the IIP numbers showing slowing trend, the Reserve Bank of India (RBI) will have to take corrective action to control the inflation. So, expect some rate increase in the coming monetary policy review.

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Index of Industrial Production(IIP)- What is it?

by Gopal Ramanan time to read: 2 min
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