INDEX OF INDUSTRIAL PRODUCTION (IIP)

Why in News:

India’s Index of Industrial Production in India declined to a three-month low of 3.7 per cent in June, mainly due to poor showing by the manufacturing sector.

Important Points:

• The factory output growth measured in terms of the Index of Industrial Production (IIP) stood at 12.6 per cent in June 2022 on account of a lower base effect.

Base Year:

• The base is always given a value of 100.
• The current base year for the IIP series in India is 2011-12.
• So, if the current IIP reads as 116, it means that there has been 16% growth compared to the base year.

Poor show by manufacturing:

• The manufacturing sector’s output grew 3.1% in June 2023 against a 12.9% a year ago
• Power generation rose 4.2% in June 2023 compared to 16.4% a year ago
• Mining output rose by 7.6% against 7.8% in the year-ago period

About Index of Industrial Production:

• It is one of the Prime indicators of economic development for the measurement of trends in the behavior of Industrial Production over a period of time with reference to a chosen base year.
• It indicates the relative change of physical production in the field of industries during a specified year as compared to the previous year.
• It is computed and published by the National Statistical Office (NSO) on a monthly basis.

Index of Eight Core Industries (ICI)

• ICI measures the collective and individual performance of production in selected eight core industries Coal, Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel, Cement and Electricity.       
• The objective of the ICI is to provide an advance indication of production performance of industries of ‘core’ nature before the release of  IIP by the Central Statistics Office.
• These industries are likely to impact general economic activities as well as industrial activities.
• The Index is compiled and released by the Office of the Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, Government of India.

Importance of IIP:

• IIP also tells how a country is performing. A good increase in industrial production would certainly help in achieving good economic growth.
• It may also indicate the trends in the general demand of products in any sector or the overall economy and check whether we are on path of right growth.
• Investors can use the IIP of various industries to examine the growth in the respective industry. If the IIP is growing month-over-month for an industry, this is a sign that the companies in the industry are performing well.
• IIP is used by public agencies including the Government agencies/departments including Ministry of Finance, Reserve Bank of India etc. All-India IIP data is used for estimation of Gross Value Added for Manufacturing sector on quarterly basis.

Use-based Classification of Industries under IIP

The use-based classification of IIP comprises of the following categories of representative goods:

• Primary Goods: Mining, Electricity, Fuels and Fertilizers
• Capital Goods : Machinery items
• Intermediate Goods : yarns, chemicals, semi-finished steel items
• Infrastructure/Construction Goods : paints, cement, cables, bricks and tiles, rail materials
• Consumer Durables : garments, telephones, passenger vehicles
• Consumer Non-Durables : food items, medicines, toiletries, etc.