Index of Industrial Production (IIP) - What is IIP? What does it indicate? Know More (2024)

The economy is an important part of the UPSC syllabus. It is a big chunk of the syllabus for the General Studies Paper III in the IAS exam. In this article, we give you a detailed description of the important economic term, the Index of Industrial Production (IIP).

Index of Industrial Production

• The Index of Industrial Production (IIP) is an index that indicates the performance of various industrial sectors of the Indian economy.
• It is calculated and published by the Central Statistical Organisation (CSO) every month.
• It is a composite indicator of the general level of industrial activity in the economy.

Official Definition – As given by CSO

“It is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.”

Index of Industrial Production Published by CSO

Index of Industrial Production Latest Updates –

• The Index of Industrial Production (IIP), witnessed a growth of 1 per cent in December 2020.
• The Index of Industrial Production (IIP) for the month of September 2019 has contracted by 4.3 % as compared to the month of September 2018.
  • This is the first time after November 2012 that all three broad-based sectors (Mining, Manufacturing, and Electricity) have contracted and the lowest monthly growth in the 2011-12 base year series.

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IIP – Explanation

• This index gives the growth rates of different industry groups of the economy over a specified time period.
• The industry groups that it measures are classified under the following:
  • Broad sectors like manufacturing, mining, and electricity.
  • Use-based sectors like capital goods, basic goods, intermediate goods, infrastructure goods, consumer durables, and consumer non-durables.
• The eight core industries of India represent about 40% of the weight of items that are included in the IIP. The Eight Core Sectors/Industries are:
  • Electricity
  • Steel
  • Refinery products
  • Crude oil
  • Coal
  • Cement
  • Natural gas
  • Fertilizers
• The United Nations Statistics Division (UNSD) recommends including quarrying, gas steam and air-conditioning supply, sewerage, water supply, waste management, and remediation in the broad sectors. But this is not done due to the problems in data availability on a monthly basis for all these sectors. So, the data has been restricted to mining, electricity, and manufacturing.

Index of Industrial Production Importance

• The Index is used by government agencies and departments such as the Finance Ministry and the RBI for policymaking.
• It is also used for estimating the Gross Value Added of the manufacturing sector quarterly.
• Also, the Index is used by business analysts, financial experts, and the private industry for multiple purposes.
• It is the only measure of the physical volume of production.
• It is also extremely useful for the projection of advance GDP estimates.

IIP Latest Change

• The latest change in the IIP was made in 2017.
• Any index is to be subject to changes and modifications like changing the base year, including more items in the basket, etc.
• The new and current base year for IIP is 2011 – 12. The previous base year was 2004 – 05.
• Another change was the inclusion and deletion of certain items in the data series.
• Some items introduced:
  • Refined palm oil
  • Surgical accessories
  • Cement clinkers
• Some items removed:
  • Chewing tobacco
  • Toothbrush
  • Calculators
  • Fans
  • Watches
  • Pens
• This is the 9th base year revision ever since IIP was first published in 1950. The first base year was 1937.

Index of Industrial Production Base Year: 2011 – 12

Core industries in the IIP

The following table represents the weight of the eight core industries in the IIP.

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