The Index of Industrial Production (IIP) is a composite indicator that measures the short-term changes in the volume of production of industrial goods in India. It reflects the growth or contraction of the industrial sector over a given period compared to a base year.
What is IIP?
- IIP tracks physical output, not value.
- It indicates the performance of the industrial sector, which includes manufacturing, mining, and electricity.
- Used as a high-frequency indicator to assess the health of the economy.
Base Year
- Current base year: 2011–12 = 100
- Base year is periodically revised to reflect structural changes in the economy.
Sectors Covered
IIP comprises three major sectors with the following weights:
- Manufacturing – ~77%
- Mining – ~14%
- Electricity – ~8%
(Manufacturing dominates the index, making IIP highly sensitive to manufacturing trends.)
Compilation and Release
- Compiled and released by the National Statistical Office (NSO)
- Under the Ministry of Statistics and Programme Implementation (MoSPI)
- Frequency: Monthly
- Usually released with a 6-week lag.
Use of IIP
- Measures industrial growth trends.
- Helps assess business cycles (expansion or slowdown).
- Used by:
- Government for policy formulation
- RBI for macroeconomic assessment
- Investors and analysts for economic outlook
Core Industries and IIP
- IIP includes data from 8 core industries:
- Coal
- Crude oil
- Natural gas
- Refinery products
- Fertilisers
- Steel
- Cement
- Electricity
- Core industries account for about 40% of IIP weight.
Strengths of IIP
- High-frequency indicator for quick assessment.
- Useful for tracking industrial momentum.
- Widely used in macroeconomic analysis.
Limitations
- Does not cover the services sector, which dominates India’s GDP.
- Volatile due to seasonal effects and base effects.
- Revised frequently, reducing reliability of initial estimates.
- Limited reflection of informal manufacturing.
Difference Between IIP and GDP
- IIP measures physical industrial output (monthly, short-term).
- GDP measures value added across all sectors (quarterly/annual, comprehensive).
Conclusion
The Index of Industrial Production is a key short-term indicator of India’s industrial performance. While it has limitations, especially in a services-driven economy, it remains crucial for tracking manufacturing trends, industrial recovery, and economic cycles.
