What is Index of Industrial Production (IIP)?

Index of Industrial Production (IIP) is calculated and released by Central Statistical Office (CSO) on a monthly basis using Laspeyer's formula. Index of Industrial Production is used to measure the short term changes in the volume of production of industrial goods of over a period of time in comparison to base year (2011-12). The eight core industries covered under Index of Industrial Production has total weight of 40.27% of total IIP.

In this article, we will discuss about: 

1. What is Index of Industrial Production (IIP)? 
2. What is the Base year of Index of Industrial Production? 
3. What was the first base year of Index of Industrial Production? 
4. Who publishes Index of Industrial Production (IIP)? 
5. How is Index of Industrial Production calculated? 
6. What is the combined weight of eight core industries in Index of Industrial Production? 
7. What are the sectors covered under Index of Industrial Production?
8. Previous Year Questions

 Index of Industrial Production (IIP)

1) The Index of Industrial Production (IIP) is used to measure the short-term changes in the volume of production of a basket of industrial products during a given period of time when compared to base year.

2) What is the Base year of Index of Industrial Production?  

The new base year of Index of Industrial Production is 2011-2012 (earlier 2004-05)

·       What was the first base year of Index of Industrial Production? 1937 

·       Why new base year was introduced?

a) New IIP base year reflect the changes in the industrial sector,

b) The new base year of IIP gets aligned with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP), Wholesale Price Index (WPI).

3) Who publishes Index of Industrial Production (IIP)?

Central Statistical Office (CSO) of the Ministry of Statistics & Programme Implementation on monthly basis.

4) How is Index of Industrial Production calculated?

The Central Statistical Office uses Laspeyer's formula to calculate Index of Industrial Production (IIP).

5) What are the sectors covered under Index of Industrial Production?

There are 3 major sectors covered under Index of Industrial Production which are Manufacturing, Mining and Electricity.

Sector	Percentage	No. of Items
Manufacturing	77.633%	809
Mining	14.373%	61
Electricity	7.994%	1

How many items are included under Manufacturing sector in Index of Industrial Production in new base year? 

In 2011-12 series, 809 items are included under Manufacturing sector in Index of Industrial Production, whereas in 2004-05 series, Manufacturing had 620 items.

The new series 2011-12 include data for electricity generation from renewable sources which was not available in earlier series.

6) How are items under each sector categorized in Index of Industrial Production?

The items in each sector can be categorized into:

a) Basic Goods: maximum weight ---> In 2011-12 series replaced with 'Primary Goods'

b) Intermediate Goods

c) Capital goods

d) Infrastructure/construction goods (new in 2011-12 series)

e) Consumer durable

f) Consumer non-durable

New Series (base 2011-12)	Weights (%)
Primary goods (NEW)	34.05
Intermediate goods	17.22
Capital goods	8.22
Infrastructure/ construction goods (NEW)	12.34
Consumer durable	12.84
Consumer non-durable	15.33
Total	100

7) What is the combined weight of eight core industries in Index of Industrial Production?   

40.27% of IIP [in 2004-05 series it was 38%] is formed by 8 core industries:

8) What are the 8 core industries covered under Index of Industrial Production?

Weight percentage of 8 Core industries

i) Electricity: 19.85% (max)

ii) Steel: 17.92%

iii) Refinery Products: 28.04%

iv) Crude Oil: 8.98%

v) Coal: 10.33%

vi) Cement: 5.37%

vii) Natural gas: 6.88%

viii) Fertilizer industries: 2.63% (least)

9) What is the role of Technical Review Committee in Index of Industrial Production?

With new base year 2011-12, an institutional mechanism has been established for facilitating dynamic revision of the item list of products and the panel of factories, through a Technical Review Committee, chaired by Secretary, Ministry of Statistics & PI. 

This Committee will meet at least once a year for identifying new items that need to be included in the item basket and removing those that have lost its relevance in the industrial sector or are no longer being produced.

10) The selection of items in the new series has been done at the 3 digit level of National Industrial Classification (NIC) for better representation as compared to selection at 2 digit level done in 2004-05 series.

11) For capital goods, data in the new series will now be captured in terms of ‘work in progress‘ to better represent the growth of capital goods and to avoid reporting of production figures in bulk after the completion of production.

12) The number of source agencies reporting data for compilation of IIP in the new series (2011-12) will be 14 as compared to 15 in the earlier series (2004-05). 

This is on account of the fact that data on ‘Iodised Salt’ in the new series will be provided by the Department of Industrial Policy and Promotion (DIPP) as O/o Salt Commissioner is not in a position to supply Salt production data after abolition of Salt Cess Act, 1953 in Finance Bill 2016.

Previous years Questions based on Index of Industrial Production:

i) In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37-90%. Which of the following are among those Eight Core Industries? (UPSC 2012)

1.     Cement

2.     Fertilizers

3.     Natural gas

4.     Refinery products

5.     Textiles

Select the correct answer using the codes given below:

(a) 1 and 5 only

(b) 2, 3 and 4 only

(c) 1, 2, 3 and 4 only

(d) 1, 2, 3, 4 and 5 

Solution: Option (c)

Note:

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