How India Counts Itself
Measuring Factory Output: The IIP
How the Index of Industrial Production tracks monthly output in mining, manufacturing and electricity, its limitations, and how businesses and the RBI use it.
The Index of Industrial Production (IIP) measures monthly changes in industrial output.
Components
- Manufacturing: the largest share.
- Mining.
- Electricity.
It is also grouped by use: primary goods, capital goods, intermediate goods, infrastructure goods, consumer durables and non-durables.
Base year
The current IIP uses base year 2011-12, with plans to update it.
How it’s used
- Early signal of economic activity.
- Input into GDP estimates.
- Watched by the RBI and investors.
Limitations
- Covers a fixed list of products; new products may be missed.
- Informal and small firms are underrepresented.
- Monthly numbers are volatile and revised.
- Base effects: comparisons with unusual months (like lockdowns) can distort growth rates.
Eight core industries
A related Index of Eight Core Industries, covering coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, is released earlier and carries a large weight in the IIP.
In April 2021, IIP growth looked huge compared with April 2020, when factories were shut in lockdown. The jump reflected the low base, not a real boom.
It tracks a fixed product list and underrepresents informal firms.
- The IIP measures monthly industrial output.
- Manufacturing is its largest component.
- It uses base year 2011-12.
- Base effects and limited coverage are limitations.
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