What is the Index of Industrial Production (IIP)? Describe its construction and limitations.

What is the Index of Industrial Production (IIP)? Describe its construction and limitations.

Answer

1. Meaning

IIP measures short-term changes in the volume of industrial production in India.

Base Year = 2011–12

2. Components

IIP is divided into:

(a) Sectors

• Mining (14.37%)

• Manufacturing (77.63%)

• Electricity (8%)

(b) Use-based classification

• Primary goods

• Capital goods

• Intermediate goods

• Infrastructure & construction goods

• Consumer durables

• Consumer non-durables

3. Data Sources

• Monthly data collected from 1,300+ industrial establishments.

• Mining → IBM

• Electricity → CEA

• Manufacturing → 400+ item groups

  
  

4. Method of Construction

(a) Laspeyres-type volume index

IIP uses fixed weights from 2011–12 ASI.

(b) Data Collection

• Monthly collection

• Physical quantities (tons, numbers, metres, litres etc.)

• Some items use IIP through deflated values

  
  

5. Limitations

• Outdated weights (consumption & production patterns have changed).

• Coverage excludes many new industries (startups, digital services).

• Reporting delays from factories.

• Quality issues in small-scale industries.

• Not fully aligned with GST administrative data.

  
  

6. Conclusion

IIP is a crucial high-frequency indicator but needs digitization, GST integration, and more frequent base-year revision.