Index of Industrial Production (IIP) – Meaning, IIP Full Form, Importance and Quick Estimates

By BYJU'S Exam Prep

Updated on: November 14th, 2023

Index of Industrial Production or IIP can be understood as a combined metric that measures the change in the production quantity of industrial goods for a short time taken against a set baseline time. The performance of several industrial sectors within the Indian economy is tracked by the IIP Index. The Central Statistical Organization (CSO) calculates and releases it each month.

The Index of Industrial Production is an important topic to understand about the economic situation of the country. The IIP Index helps to evaluate the condition of the core economic sectors. With all these pointers, the topic becomes relevant for the upcoming UPSC Exam. Through this article, we have tried covering all the basic pointers related to the IIP Index.

Index of Industrial Production (IIP)

The change in the volume of industrial product output over a specific time period is measured by the Index of Industrial Production. The National Statistical Office (NSO), Ministry of Statistics, and Programme Implementation compile and release it each month. It is a composite indicator that tracks the rate of expansion of business sectors categorized as either broad or use-based.

The Base Year for IIP is 2011-2012. Government agencies, including the Reserve Bank of India, the Ministry of Finance, and the Office of Economic Adviser (Department for Promotion of Industry and Internal Trade), use the IIP index for policy-making purposes.

The Index of Industrial Production is also a combined pointer to the overall level of industrial activities in the country’s economy.

IIP Index – Meaning

As per the Central Statistical Organization’s formal definition- “Index of Industrial Production is a compound statistic that assesses the short-range variations in the quantity of production of a basket of manufacturing goods throughout a given time with regard to that in a selected base time duration.”

The IIP Index is a metric that shows the accomplishment of eight industrial sectors in the country’s economy. Every month CSO computes and announces the IIP Index numbers.

  • The IIP index also reflects the growth rates of various industry groups of the country’s economy in a specified or fixed time or duration.
  • The economic growth and industrial health are calculated by comparing the IIP index value of the current month of the current year with the same month last year.

Primary Industries of IIP Index

The primary industries of the IIP incorporate the 8 core sectors of the country’s economy. These core industries hold a 40.27 percent share of IIP, providing the growth rates of various industry groups in a specified time duration. The Index of Industrial Production number gauges the production in various industries for the time under review, which is generally one month compared to the reference duration.

The IIP index only measures the physical capacity of industrial production.

Index of Industrial Production (IIP) Notes

The industry groups that the Index of Industrial Production measures are broadly classified into three sectors: mining, manufacturing, and electricity. It also includes sectors based on use, such as goods (capital, primary, intermediate infrastructure), consumer durables, and non-durables.

Eight Core Sectors of the Indian Economy

The country’s 8 core sectors of the economy are listed below.

  • Electricity industry
  • Steel industry
  • Refinery products
  • Crude oils
  • Coal industry
  • Cement industry
  • Natural gas
  • Fertilizers

The Indian economy is mainly affected by these core sectors, which consequently affects the maximum number of other industries. Index of Industrial Production on the production of industries is limited to mining, manufacturing, and electricity.

The weightage of Core Industries in descending order is-Refinery Product> Electricity Industry> Steel Industry> Coal Industry >Crude Oils> Natural Gas> Cement Industry> Fertilizers

Importance of IIP Index

The Index of Industrial Production helps several organizations, agencies, businesses, and departments for multiple purposes. The IIP Index is essential for estimating the Gross Value Added to the manufacturing sector each quarter, making it an index closely monitored by financial experts, business analysts, private industry, and government agencies.

  • Numerous government organizations and departments take the help of the Index of Industrial Production for making various policies. It includes the RBI, the Finance Ministry, and many other government agencies.
  • Different industries use the IIP index to estimate the GVA in the manufacturing sector every three months.
  • Furthermore, many private sector industries, finance specialists, and business analysts for various purposes.
  • Moreover, the Index of Industrial Production is beneficial for predicting advanced GDP estimates.

IIP Index – Base Year 2011-12

2011 – 12 is the latest base year for the Index of Industrial Production. This IIP index includes the weight of Core industries listed in IIP. As per this index, Coal Industry weighs 10.33, the Electricity industry weighs 19.85, the Crude oil weighs 8.98, the Cement industry weighs 5.37, the Natural gas weighs 6.88, the Steel industry weighs 17.92, the Refinery products weigh 28.04, and fertilizers weigh 2.63 making a total of 100.

Source of IIP Data

  • The maximum portion of the data for the calculation of IIP is sourced from the DIPP (Department of Industrial Policy and Promotion).
  • Also, numerous agencies and ministries of distinct government departments are data sources for IIP calculation.
  • The Central Statistical Organization uses secondary data to estimate the monthly IIP number.

Calculating the Index of Industrial Production

  • The mathematical calculation of the Index of Industrial Production involves Laspeyre’s fixed base formula.
  • IIP calculation generates the average weight of production compared to all the industries.
  • The calculated number indicates the growth of industrial groups classified in the IIP Index list.

Index of Industrial Production [Latest Updates]

Every month on the 12th (or the preceding working day if the 12th is a holiday), the Quick Estimates of Index of Industrial Production (IIP) are produced with a six-week lag and are compiled using data from source agencies, in turn, obtained the data from the producing firms and establishments.

  • 4.3 percent was the index of industrial production (IIP) in December 2022, according to information made public by the Ministry of Statistics. The percentage was 7.3% in November 2022.
  • India’s factory output based on the Index of Industrial Production (IIP) grew 7.1% year-on-year in the month of November.
  • For the time under consideration, the consumer durables and non-durables indexes were 109.7 and 173.2, respectively.
  • The energy industry outperformed all other important industries with a growth rate of 10.4%, followed by mining with a growth rate of 9.8% and manufacturing with a growth rate of 2.6%.
  • The country’s industrial output increased 5.4% year over year from April to December 2022, down from 15.3% at the same time last year.

Difference Between IIP Index and Annual Survey of Industries

IIP Index is the index of industrial production, whereas ASI stands for the Annual Survey of Industries. Even though both statistical activities are used to obtain and observe industrial output data, work differently.

  • IIP number is calculated and released every month, whereas ASI is computed annually.
  • IIP sources data from multiple source organizations or agencies under distinct Acts, while the other side, ASI sources data under the Collection of Statistics Act.
  • The compilation of IIP is based on the data collected from the country’s sixteen ministries and administrative departments. In contrast, ASI data depends on the data accounts and documents kept by the industries.
  • While the IIP is used to find out the change in production volume of the industries and growth in core industries of the Indian economy, the ASI aims to acquire comprehensive statistics of the sectors to estimate the impact of recorded manufacturing industries on the national income.

Index of Industrial Production UPSC

The Index of Industrial Production is a crucial topic in the Indian Economy section of the UPSC Syllabus. To get in-depth knowledge about this concept, one should refer to the Indian Economy Books.

Students can even take help from UPSC Previous Years’ Question Papers to get references for the questions asked on the topic of the IIP Index.

IIP UPSC Question

Question – Consider the following statements about the Index of Industrial Production

  1. The eight core industries comprise more than 50 percent of the weight in the IIP
  2. Refinery products hold the highest weightage among the eight core industries

Which of the statement(s) is/ are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Answer – Option B

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