What is Index of Industrial Production (IIP)?

The IIP is a composite indicator that measures short term changes in the volume of production of a basket of industrial products over a period of time, with respect to a chosen base period. It is compiled and published monthly by the Central Statistics Office (CSO) with a time lag of six weeks from the reference month.

Where is the IIP used?

The all-India IIP provides a single representative figure to measure the general level of industrial activity in the economy on a monthly basis. Used by government agencies including the Ministry of Finance, the Reserve Bank of India etc, for policy purposes, the all-India IIP forms a crucial input for compilation of Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis. It is also used extensively by financial intermediaries, policy analysts and private companies for various analytical purposes.

It is crucial considering the IIP is the only measure on the physical volume of production. While its impact on GDP calculations is lower following changes incorporated when the latest shift to the 2011-12 base year happened, it remains extremely relevant for the calculation of the quarterly and advance GDP estimates. For the annual revised estimates, in any case, the CSO used to replace the IIP with the ASI (Annual Survey of Industries), which comes out with a two-year lag.

Source: The Indian Express

Why change in the base year is important?

The Central Statistics Office (CSO) revised the base year of the all-India Index of Industrial Production (IIP) from 2004-05 to 2011-12 on 12 May 2017. Revisions in the IIP are necessitated to maintain representativeness of the items and producing entities and also address issues relating to continuous flow of production data. The base year revision captures structural changes in the economy and improves the quality and representativeness of the indices. The revised IIP (2011-12) not only reflect the changes in the industrial sector but also aligns it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Wholesale Price Index (WPI).

Source: Indian Economic Service

Annual Survey of Industries

Annual Survey of Industries (ASI) is the principal source of industrial statistics in India providing information on important characteristics of registered manufacturing sector. ASI is considered as the most comprehensive and reliable source of organised manufacturing sector data providing disaggregated industry specific details of production, investment, employment and costs.

ASI vs IIP

The Industrial Output data is captured and monitored, primarily, through two statistical activities:

(i) Annual Survey of Industries (ASI) on an annual basis and (ii) Index of Industrial Production (IIP) on a monthly basis.

The ASI is conducted under the Collection of Statistics Act, since 1959, to obtain comprehensive and detailed statistics of industrial sector with the objective of estimating the contribution of registered manufacturing industries as a whole to the national income. The IIP is compiled on the basis of data sourced from 14 ministries/ administrative departments. Data for IIP are collected by various source agencies under different Acts/statutes. Data received then undergo scrutiny and validation before finalisation. The output figures for compilation of IIP are authenticated by respective line Ministries/ departments and the ASI data is based on actual book of accounts and other documents maintained by registered factories.

Source: Indian Economic Service

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