 Index which details out the growth of Industrial sectors in the economy  One of the prime indicators of the economic development and the short-term economic analysis  Measures trend in the behavior of industrial production over a period of time with reference to a chosen base year

1. Index of Industrial Production
(IIP)
Primer

2. What is IIP…?
 Index which details out the growth of Industrial sectors in the
economy
 One of the prime indicators of the economic development and the
short-term economic analysis
 Measures trend in the behavior of industrial production over a
period of time with reference to a chosen base year

3. Origin and History
 The office of economic advisor ministry of commerce and industry made the
first maiden attempt of compilation and release of IIP with base year 1937
 To capture the changes in the industrial sector, the state series of IIP is
revised from time to time by dropping obsolete items, and adding new items
and also shifting the base year to a more recent one
 The base year of the all-India IIP which commenced in India in 1937 was
revised in 1946, 1951, 1956, 1960, 1970, 1980-81
 The current base year is 1993-94
 The general scope of the IIP as recommended by the United Nations
Statistical Office (UNSO) is defined to include mining, manufacturing,
electricity, construction and gas sectors
 Due to constraints of data availability the present general IIP constitutes of
mining, manufacturing (organised and unorganised) and electricity

4. Functions, Usage and Importance
Functions
 To prepare monthly as well as annual industrial production
 To comprise main characteristics of Annual Survey of Industries (ASI) returns on
district and group level
Usage and Importance
 Used by the planners, the state and the central government and at different levels
for different policy decisions and other purposes
 Used by the state government for preparation of state income estimates of
manufacturing sector
 Used by many countries in the annual and quarterly national accounts in many
countries
 The monthly IIP helps many countries to use it as a reference series in the
compilation of cyclical indicators which helps to predict the future turning points in
business cycle
 Investors can use the IIP of various industries to examine the growth in the
respective industry

5. Data Sources
 The responsibility for compilation and publication of IIP was vested
with Central Statistical Organisation after its inception in 1951
 CSO receives monthly production data from as many as 14 source
agencies, who collect data from the production units except for
Railways, for which the consolidated data are supplied by the Railway
Board
 Department of Industrial Policy & Promotion (DIP&P) supplies data on
as many as 213 out of 285 group of items in the manufacturing sector
 The data on Electricity sector is furnished by the Central Electricity
Authority
 The index relating to Mining and Quarrying sector is supplied by the
Indian Bureau of Mines, Nagpur
 They are all summed up to arrive at the general IIP index

6. Index Calculation (1/4)
 The index is a simple weighted arithmetic mean of production relatives
calculated by using Laspeyre’s formula:
I= Σ (Wi . Ri)/Σ Wi
Where, I is the Index,
Ri is the production relative of the ith item for the concerned month,
Wi is the weight allotted to the ith item
 It is compiled in stages, initially for items, then for sub-groups, groups
and major groups, sectors and finally for all sectors combined
 The index of monthly production covering 61 items supplied by Indian
Bureau of Mines is dovetailed with indices of manufacturing and
electricity sectors for compiling the general IIP

7. Index Calculation (2/4)
 The IIP Index is composed of three broad heads namely Manufacturing, Mining and Electricity,
with weight 79.36%, 10.2% and 10.5% respectively
 Let us examine the detailed breakup of the manufacturing sector along with the indexed
production of each of the sub heads
Description Weight (Wi) Production (Ri) Wi*Ri
Basic Chemicals & Chemical Products
(except products of Petroleum & Coal) 14.00 104 1456
Machinery and Equipment other than
Transport equipment 9.57 115 1100.55
Food Products 9.08 203 1843.24
Basic Metal and Alloy Industries 7.45 116 864.2
Rubber, Plastic, Petroleum and Coal
Products 5.73 100 573
Cotton Textiles 5.52 287 1584.24
Non-Metallic Mineral Products 4.40 52 228.8
Transport Equipment and Parts 3.98 77 306.46
Metal Products and Parts, except
Machinery and Equipment 2.81 88 247.28
Wood and Wood Products; Furniture and
Fixtures 2.70 50 135
Paper & Paper Products and Printing,
Publishing & Allied Industries 2.65 65 172.25
Other Manufacturing Industries 2.56 31 79.36
Textile Products (including Wearing
Apparel) 2.54 20 50.8
Beverages, Tobacco and Related Products 2.38 68 161.84
Wool, Silk and man-made fibre textiles 2.26 56 126.56
Leather and Leather & Fur Products 1.14 66 75.24
Jute and other vegetable fibre Textiles
(except cotton) 0.59 89 52.51
Sum 79.36 9057.33

8. Index Calculation (3/4)
 Thus the manufacturing Index stands at:
I= Σ (Wi . Ri)/Σ Wi
= 9057/79.36
= 114.13
 Similarly the mining and the electricity index can be calculated and let us take their values as 52.26 and
85.96 respectively
 Thus the value of IIP index for the month ‘x’ is equal to
= Manufacturing Index + Mining Index + Electricity Index
= 114.13 + 52.26 + 85.96
= 252.35
 Now let us assume that the production in each of the sub heads of the manufacturing index grows in the
next month say ‘y’

9. Index Calculation (4/4)
Description Weight (Wi)
• Thus the new manufacturing
Production (Ri) Wi*Ri
Basic Chemicals & Chemical Products index value is 9239.99/79.36 =
(except products of Petroleum & Coal) 14.00 106 1484 116.43
Machinery and Equipment other than
Transport equipment 9.57 124 1186.68 • Corresponding value for the
Food Products 9.08 210 1906.8 mining and electricity index is
Basic Metal and Alloy Industries 7.45 110 819.5
Rubber, Plastic, Petroleum and Coal at 54.26 and 88.96 respectively
Products 5.73 98 561.54
Cotton Textiles 5.52 290 1600.8
• Thus the value of IIP index is
Non-Metallic Mineral Products 4.40 54 237.6 at the end of month ‘y’ stands
Transport Equipment and Parts 3.98 79 314.42 at 116.43 + 54.26 + 88.96 =
Metal Products and Parts, except
Machinery and Equipment 2.81 91 255.71
259.65
Wood and Wood Products; Furniture and
• Thus the Index has grown by
Fixtures 2.70 52 140.4
Paper & Paper Products and Printing, 2.89% in month ‘y’ compared
Publishing & Allied Industries 2.65 67 177.55 to its value in month ‘x’
Other Manufacturing Industries 2.56 32 81.92
Textile Products (including Wearing • This signifies a growth in the
Apparel) 2.54 21 53.34
industrial production in India
Beverages, Tobacco and Related Products 2.38 69 164.22
Wool, Silk and man-made fibre textiles 2.26 55 124.3
Leather and Leather & Fur Products 1.14 68 77.52
Jute and other vegetable fibre Textiles
(except cotton) 0.59 91 53.69
Sum 79.36 9239.99

10. Salient features of the series with base
1993-94
 The latest series contains 543 items grouped into 287 item groups
 The 287 items consists of 285 item groups of manufacturing sector and one each of
mining and electricity sectors
 The item basket identified captures about 80% of the output of the manufacturing sector
 It has allocated individual weights to all the 18 items of earlier series from the small-scale
industries (SSI) sector
 This series has followed the National Industrial Classification NIC-1987
 The quick estimates are being released with a time lag of six weeks from the reference
month
 These quick estimates for a given month are revised twice in the subsequent months

11. Problems of the new series
 The performance of the unorganized manufacturing sector could not
be adequately reflected due to non-availability of monthly production
data in respect of sufficient number of items of this sector
 Dropping of important new items adversely affected the
representatives of the market basket and the market indices and
hence, the source agencies could not furnish monthly time-series
production data
 The quality of monthly production data suffers from substantial non-
response on the part of manufacturing units
 The source agencies do not adopt any standard estimation techniques
for estimation of non-responded production factories
 Over or under estimation of item-wise production data since the frame
of factories are not maintained by the source agencies

12. Index Structure

13. Manufacturing Sector
 The Manufacturing sector has the maximum weightage in the IIP index
 It comprises of 478 items grouped into 285 item groups
 It is divided into two sub groups
 Producer Goods: Producer Goods produce goods which are used as raw
material in further production processes
 Used Based Goods: Used Based Goods are goods produced for final
consumption.
 It is further sub divided into- Basic Goods, Capital Goods, Intermediate Goods and
Consumer Goods.
 The consumer goods segment is again subdivided into the durable and the non
durable goods segment.
 In terms of weight the basic goods segment contributes the most followed by the
intermediate and consumer non durables

14. Mining & Electricity Sector
 Mining contributes only 10.5% in the IIP index
 The electricity segment a meager 10.2%
 Electricity is divided to three sub-sectors
 Hydro
 Thermal
 Nuclear
 The above are all clubbed into 1 item-group
 Mining has numerous no. of items which are again all clubbed into 1 item group

15. Basic Goods
 Basic goods are goods wanted not for its
own sake but for the goods derived from
Top 5 Components of Basic Goods Index it, for examples, textiles which are wanted
for the apparels made from them
Rem aining
Others, M ineral Index,
 It contributes 35.5%, the highest in the
26.23% 29.50% manufacturing sector
 It consists of 65 items
Bars and rods,
5.09%  Mineral Index Consists of 2 parts: mineral
fuels and metallic ores
 The top 5 companies dealing in the
different basic goods are stated in the
N itrogenous
fertilizers, Cement all Electricity,
next slide
5.10% kinds, 5.60% 28.64%  They are sorted according to their market
cap in a decreasing order barring some
products
 Cos. In electricity were sorted according
to their production capacity

16. Top 5 companies in Basic Goods Segment (1/3)

17. Top 5 companies in Basic Goods Segment (2/3)

18. Top 5 companies in Basic Goods Segment (3/3)

19. Capital Goods
 Raw materials used in the production of
finished products, for e.g.: machines and
Top 5 Components of Capital Goods Index tools
Well/off shore  Capital good segment is probably the most
Diesel engines
(IPP), 8.57%
platforms, important constituent in terms of its
7.32% significance because it helps in future growth
Industrial of other segments
machinery,  It contributes 9.7% in the IIP which is the
5.50%
Complete least consisting of 55 items
tractors,  The top 5 companies dealing in the different
4.73%
capital goods are stated in the next slide
Laboratory
Remaining
Others,
and scientific  They are sorted according to their market
64.85% instruments, cap in a decreasing order
4.48%
 Only 2 cos. were found in off-shore platforms
category
 No cos. were found in the laboratory
instruments category

20. Top 5 Companies in Capital Goods Segment
(1/2)

21. Top 5 Companies in Capital Goods Segment
(2/2)

22. Intermediate Goods
Top 5 Components of Intermediate Goods Index  Goods that are used in the production
of other goods for e.g.: lumber, sugar
Filam ent yarn,
Cotton yarn
(including SSI), 6.63%
 It contributes 26.4% in the IIP which is
17.16% the 3rd highest
 It consists of 93 items
Plywood  The top 5 companies dealing in the
com m ercial,
6.32% different intermediate goods are
stated in next slide
Rem aining
 They are sorted according to their
Others, PVC pipes & market cap in a decreasing order
Particle board,
60.64%
3.91%
tubes, 5.73%
 No cos. Were found in the particle
board category

23. Top 5 Companies in Intermediate Goods Segment
(1/2)

24. Top 5 Companies in Intermediate Goods Segment
(2/2)

25. Consumer Durables
 Goods that are able to extended for a
period of time without deterioration
Top 5 components of Consumer Durables Index
and yields services or utility overtime
for e.g.: cars appliances
Telephone  It contributes 5.1% in the consumer
instrum ents,
12.17%
Scooter and goods which is least
m opeds,
11.42%
 It consists of 27 items
 The top 5 companies dealing in the
T.V. receivers,
different durable goods are stated in
9.75%
next slide
 They are sorted according to their
Remainig
Passenger cars, market cap in a decreasing order
Others,
Giant tyres,
7.73%
8.34% barring some products
55.69%  Cos. in passenger cars and t.v.
receivers were sorted according
to their production capacity
 Cos. In telephone instruments
were sorted according to
their sales value

26. Top 5 companies in Consumer Durable Goods
Segment (1/2)

27. Top 5 companies in Consumer Durable
Goods Segment (2/2)

28. Consumer Non-Durables
 A good which is completely used up
Top 5 Components of Consumer Non-Durables Index
by the consumer for e.g.: food,
clothing
Cotton  It contributes 23.2% in the consumer
hosiery cloth,
10.94%
Sugar, 9.67% goods which is the highest
 It consists of 63 items
Wheat  The top 5 companies dealing in the
flour/maida, different non-durable goods are
9.23%
stated in next slide
 They are sorted according to their
Remainig
Paper & paper market cap in a decreasing order
100% Non-
Others, cotton cloth,
board (IPP), barring some products
5.95%
59.48% 5.18%  No cos. could be found in the 100%
non-cotton cloth category
 Only 2 cos. Were found in cotton
hosiery which were sorted
according to their sales value

29. Top 5 companies in Consumer Non-Durable
Goods Segment (1/2)

30. Top 5 companies in Consumer Non-Durable
Goods Segment (2/2)

31. Performance Of IIP
Y-o-Y Change  The general IIP index (281.9) for May’09 reflects
7% the positive effect of interest rate cuts, and
6% government stimulus measures to revive
5% demand and investment
Change (%)
4%  Factory prod. is likely to increase further as FM
3%
Pranab Mukherjee projected high government
2%
spending in infrastructure and eased some of
1%
the tax burden on companies and consumers
0%
IIP M anufacturing M ining Electricity
 Though electricity has increased but it had no
impact on IIP due to its very low weigtage in it
Apr-M ay'08-'09 Apr-M ay'09-'10  Demand for Cons. durable goods increased
because of stimulus packages such as duty
Y-o-Y Change reductions and sixth pay commission
18%
15%
 Decrease in the capital goods and consumer
12% non-durables bought a decrease in
manufacturing due to their significant
Change (%)
9%
6%
3%
contribution
0%  Basic and Intermediate Goods though account
-3%
-6%
for a significant portion of IIP could not affect it
-9% because of its insignificant growth
Basic Goods Capital Goods Interm Goods Cons. Durable Cons. N on-  The manufacturing sector declined overall
Durable together with the mining which led
Apr-M ay'08-'09 Apr-M ay'09-'10 to a fall in the IIP

32. Growth-rate change over-time
IIP (Y-o-Y Change) Y-o-Y Growth
18 20
16
15
14
12
10
Growth (%)
Growth (%)
10
8 5
6
4 0
2
0 -5
Jan-05
Sep-05
Jan-06
Sep-06
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
M ay-05
M ay-06
M ay-07
M ay-08
M ay-09
-2
Jul-05
Jul-06
Jul-08
Jul-07
Oct-06
Jan-05
Apr-05
Jan-07
Oct-05
Apr-07
Jan-08
Oct-07
Apr-08
Oct-08
Jan-06
Apr-06
Jan-09
Apr-09
M anufacturing M ining Electricity
 IIP was seen to perform very well during previous years but it slumped
down in the year 2009 because of economic slowdown
 Manufacturing was seen performing consistently since previous years but it
started falling down and ultimately reached a negative in March’09
 Mining and Electricity are both the sectors which have been doing well in
previous years and are expected to continue the trend in the coming years

33. Growth-rate change in Consumer Goods segment
Capital Goods (Y-o-Y Change) Y-o-Y Change
60 30
50 25
20
40
15
Growth (%)
Growth (%)
30 10
20 5
10 0
-5
0 -10
-10 -15
Jul-05
Jul-06
Jul-07
Jul-08
Jan-05
Apr-05
Apr-06
Oct-07
Jan-08
Oct-08
Jan-09
-20
Oct-05
Jan-06
Oct-06
Jan-07
Apr-07
Apr-08
Apr-09
Jul-05
Jul-07
Jul-08
Jul-06
Jan-05
Apr-05
Oct-06
Jan-07
Oct-07
Jan-08
Oct-08
Jan-09
Apr-09
Oct-05
Jan-06
Apr-06
Apr-07
Apr-08
Basic Goods Intermediate Goods Consum er Goods
 Capital Goods is a segment which had performed well in the years like 2005, 2006
and 2007 but has exhibited quite an irregular pattern of growth in 2008 and 2009
 Intermediate goods had performed well in years 2006, 2007 but then started sliding
down and till now could not regain its growth-level
 Basic goods growth has slumped down in recent years though it performed well in
previous years

34. Consumer Durables and Non-Durables
 In consumer goods there are two
divisions-durables and non-durables
Y-o-Y Change
30  Durable goods had not performed
25
20 well in years like 2007,2008 but had
15
been doing really well since previous
Growth (%)
10
5
0
few months of 2009
-5
-10
 Non-durable goods was more or less
-15
performing since previous years but
Jul-05
Jul-07
Jul-08
Jul-06
Jan-05
Apr-05
Jan-06
Jan-07
Oct-07
Jan-08
Apr-08
Oct-05
Apr-06
Oct-06
Apr-07
Oct-08
Jan-09
Apr-09
has really gone down in the
Durable Goods N on-Durable Goods FY2009-10
 Overall, the consumer goods sector
has been performing consistently

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