Index of Industrial Production (IIP): Overview & Differences

Introduction

The Office of the Economic Advisor, Ministry of Commerce and Industry made the first attempt at the compilation and release of IIP with base year 1937, covering 15 important industries, accounting for more than 90% of the total production of the selected industries. The all-India IIP has been released as a monthly series since 1950. With the inception of the Central Statistical Organization in 1951, the responsibility for the compilation and publication of IIP was vested with the same.

Overview of Industrial Production Index (IIP)

• The IIP series in India has been revised from time to time by reviewing the coverage of items and industries and by improving to reflect adequately, the industrial growth and structure. 
• When the index was commenced in India, the base year adopted was 1937 and this was revised successively to 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94, 2004-05 and recently to 2011-12
• Currently, the base year of IIP is 2011-12: 
• Headline PMI (0 to 100): A numerical representation of the overall business activity.
  • PMI Above 50: Indicates an expansion compared to the previous month. The higher the number above 50, the more significant the expansion.
  • PMI Under 50: Represents a contraction. The lower the number below 50, the more significant the contraction.
  • PMI at 50: Indicates no change in business activity.
• IIP Index: It is currently calculated using 2011-2012 as the base year.
• Weightage of Different Sectors: It consists of 839 items with the highest share of  Manufacturing items i.e 809. 
  • Mining(29): 14.37 %
  • Manufacturing (809): 77.63 %
  • Electricity(1): 7.99 %
• Eight Core Sectors [UPSC 2012]
  • Comprising 40.27% of the weight of items included in the Index of Industrial Production (IIP). 
  • The eight core sector industries in decreasing order of their weightage: Refinery Products > Electricity > Steel > Coal > Crude Oil > Natural Gas > Cement > Fertilizers.

Difference between the Purchasing Managers Index and the Index of Industrial Production

Conclusion

• The periodic revision of the Industrial Production Index (IIP) base year in India ensures a more accurate reflection of the evolving industrial landscape. 
• This is crucial for monitoring the performance of core sectors and understanding their contribution to overall economic growth. 
• In IIP, By capturing changes in technology, economic reforms, and consumer behavior, enables policymakers and stakeholders to make informed decisions and implement targeted strategies to foster industrial development and drive sustainable economic progress.