What is Index of Industrial Production?
Index of Industrial Production (IIP) is an index, which measures changes in industrial activity or growth rates in various industry groups with reference to a base year. The base year considered currently for the index calculations is the year 2011-12. The base year was changed to 2011-12 from 2004-05 in the year 2017.
Central Statistical Organisation (CSO) releases monthly estimates of IIP, with a time lag of 42 days or 6 weeks on the 12th of every month (or previous working day, if 12th is a holiday).
The IIP measures growth in industry groups classified as industrial sectors and use-based sectors. Mining, manufacturing, and electricity are industry sectors while primary goods, capital goods, intermediate goods as well as infrastructure/construction goods are use-based sectors.
IIP is a leading indicator of corporate earnings as it measures production, which translates into revenues for companies. An increase in revenues and margins boost investment growth in the sector. Thus, growth in IIP and revenues of index companies show a positive correlation. As the total nominal value of goods & services produced or consumed grows, the revenue and profits of the producers of such goods and services also rise.
However, the ability of IIP to track GDP is limited as it excludes the services sector. Currently, the services sector accounts for more than half of India's GDP. Growth in IIP is more volatile than GDP growth. Thus, dependence on IIP for tracking GDP may lead to inaccurate or false predictions. Also, IIP is a monthly index leading to volatility led by seasonality factor.
As per the data released by Ministry of Statistics & Programme Implementation (MoSPI) for June 2021, the IIP stands at 122.6 as against 107.9 in the corresponding month last year. It rose by 13.6 per cent on a YoY basis. The IIP for the mining, manufacturing, and electricity sectors stand at 105.5, 121.0 & 169.1 respectively. The indices stand at 122.4 for primary goods, 80.2 for capital goods, 132.6 for intermediate goods, and 136.8 for infrastructure/construction goods.