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What the New IIP Series Have in the Bag?
Thu, 18 May Pre-Open

The new Index of Industrial Production (IIP) for India has attracted much praise from the financial markets.

The base year for the new IIP has been changed to 2011-2012 from the earlier 2004-2005. This has been done to capture the changes in the industrial sector that have happened over a period of time.

The change is made also to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP), Wholesale Price Index (WPI), etc.

The new IIP brings some most awaited changes to the methodology and coverage of items.

What are these changes? And what value add do they bring in?

The new IIP comes with changes in weights in the IIP segments which include manufacturing, mining and electricity sectors. This is an apt development as these items need to be changed or relooked at from time to time to ensure that the IIP continues to maintain a representativeness of the current economy.

There is also an addition of new and rapidly growing sectors in the new IIP. The new IIP has a total of 809 items in the manufacturing sector. The earlier one had 620.

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While some items have been removed, items like cement clinkers, medical and surgical accessories, refined palm oil etc., have been added. Along similar lines, the electricity sector now includes data from the renewable energy sector as well.

One of the significant changes in the new IIP is addition in the number of reporting factories. This will enable capturing of more meaningful data. Also, the closed factories have been removed from the calculations, which can help in depicting a fair picture.

Apart from the above, the new IIP series has introduced 'work-in-progress' concept to reduce volatility in the capital goods sector.

There's also an improvement in the use-based classification by bringing in a new class of "basic goods" in lieu of primary goods and introducing a new "infrastructure/construction goods" component.

In all, the new IIP will be a better representation of the Indian industry than the old one was.

The changes will mean more conformity between IIP and inflation figures. It will also mean accurate reporting of macro-economic data, and thereby aid in making crucial policy decisions.

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Oct 23, 2017 03:35 PM

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