INDEX OF INDUSTRIAL PRODUCTION (IIP)

1. INDEX OF INDUSTRIAL PRODUCTION (IIP)

Context
The Index of Industrial Production (IIP) tracks India’s short-term industrial performance, covering mining, manufacturing, and electricity. August 2025 showed 4% growth, after July’s 3.5%, indicating steady industrial momentum.

The Index of Industrial Production

The IIP is a composite index that tracks changes in the volume of production within the country’s industrial sector.
 Key Features:

• Purpose: It captures the output of industries and helps in understanding industrial cycles and economic progress.
   
• Measurement: By comparing monthly output, it indicates whether production is expanding or contracting.
   
• Significance: As a barometer of industrial health, it directly influences GDP growth assessments and policy-making.
   

Recent Data and Trends

Industrial output in India has shown steady but moderate improvement.

• August 2025 Growth: Recorded at 4%, reflecting a slight uptick in production.
   
• July 2025 Growth: Registered at 3.5%, showing consistency in growth but still below high expansion levels.
   
• Reporting Cycle: Monthly data is released with a one-month lag. For instance, August data is published in September, while September figures will be released in October.
   This pattern allows policymakers, analysts, and businesses to track and respond to industrial dynamics in near real-time.
   

Calculation and Coverage

The IIP is prepared and released by the Ministry of Statistics and Programme Implementation (MoSPI).
 Calculation Methods:

• Quantum Index: Production is measured in physical terms such as tonnes, kilowatt-hours, or units, rather than monetary values.
   
• Production Relatives: Calculated using a simple weighted arithmetic mean.
   
• Laspeyres Formula: The principal formula employed for IIP computation, enabling comparison with a fixed base year.
   

Sectors Covered:

1. Mining – Output of minerals and raw materials.
    
2. Manufacturing – Contribution from factories and industries, forming the largest share of IIP.
    
3. Electricity – Generation and distribution, reflecting infrastructural strength.
    

Base Year and Statistical Revisions

• Current Base Year: The IIP is presently calculated using 2011–12 as the base year.
   
• Upcoming Change: From 2026, the base year will be revised to 2022–23, aligning IIP with updated GDP and CPI series for better accuracy.
   
• Purpose of Revision: Changing the base year ensures that the index reflects current industrial structures, technologies, and consumption patterns.
   

Role of MoSPI

The Ministry of Statistics and Programme Implementation (MoSPI) plays a central role in managing and disseminating official statistical data.
 Responsibilities Include:

• Collecting and releasing data on IIP, GDP, inflation, consumption, savings, and national income.
   
• Publishing the Consumer Price Index (CPI) alongside IIP for inflation analysis.
   
• Overseeing schemes such as the Member of Parliament Local Area Development Scheme (MPLADS) and monitoring the 20 Point Programme aimed at socio-economic development.
   

Economic Significance

The IIP is not merely a statistical tool but a vital policy instrument.

• Economic Indicator: It provides a snapshot of industrial health, guiding monetary and fiscal policies.
   
• Business Decisions: Industries and investors use IIP data to plan production, manage supply chains, and forecast demand.
   
• Policy Use: Government bodies utilize it for sectoral interventions, infrastructure planning, and growth strategies.
   

Conclusion

The Index of Industrial Production (IIP) tracks industrial activity in mining, manufacturing, and electricity. With upcoming base year revisions, it remains crucial for policy, business strategies, and measuring India’s economic momentum.