Index of Industrial Production (IIP)

The Index of Industrial Production (IIP) is an abstract number or ratio which measures the growth of various sectors in the economy. In India, IIP is a representative figure which measures the general level of Industrial activity in the country. Being an abstract number, it does not show volume of activity and only shows the magnitude which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time.

Key Historical Facts

An Interim Index of Industrial Production was released from 1947, based upon 15 industries and with base year 1937. It was discontinued in 1949.  The First IIP was published in 1950 by Office of Economic Advisor, Ministry of Commerce with base year 1937.  The base year was later shifted from time to time. Currently IIP data is released every month by CSO (Central Statistical Office) which was set up in 1951. Current IIP Base year is 2004-05.

Composition of IIP

Currently, the Index of Industrial Production comprises 682 individual items. These items can be divided into two ways as follows:

Sector wise Composition

Sector wise , the items included in IIP fall into three sectors viz. mining, manufacturing and electricity sectors.  The below tables shows the items in base year 2004-05 and 1993-94 number and weightage of items sector wise.

From the above table, we note down that:

• In the current IIP index, there are 61 mining items and 620 manufacturing items. Only 1 item (electricity) comes under electricity sector.
• Maximum weightage is of manufacturing items (755.27), followed by Mining (141.57) and Electricity (103.16)
• While updating the IIP from 1993-94 to 2004-05, the weightage of manufacturing was brought down while that of mining was increased. This is mainly because the contribution of the Gross Domestic Product of the Manufacturing sector has decreased compared to other two sectors as per the National Accounts Statistics.

Use wise Composition

Use wise, the 682 items are divided into basic goods, capital goods, intermediate goods and consumer goods. Further, consumer goods is divided into consumer durables and consumer non durables. The below table shows the items in IIPs with base year 1993-94 and 2004-05 with number of items therein.

From the above, table, we note that:

• In the IIP index, the maximum weight is of basic goods, followed by Consumer Goods, followed by Intermediate and Capital Goods. While updating IIP index from base year 1993-04 to 2004-05, the weightage of basic goods and consumer goods has gone up; while that of capital goods and intermediate goods and come down.
• The maximum weightage is given to Basic goods, followed by Consumer Goods, followed by Intermediate and Capital Goods. Among Consumer goods, the weightage of consumer non-durables is much more than of durables.

Percentage Weightage of Core Industries

The eight Core Industries viz. Fertilizers, Electricity, Refinery Products, Natural Gas, Steel, Cement, Crude Oil and coal [remember this by mnemonic FERNS-C³] is nearly 38% in the IIP. This is shown in decreasing order as follows:

So, on the basis of weightage the arrangement of six core industries in decreasing order is as follows: Electricity> Steel >Refinery Products> Crude Oil >Coal>Cement >Natural Gas> Fertilizers.[currentuser_id]