Base Year of Industrial Production Index Revised

2019 ias preliminary exam test series

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, revises the base year of the macroeconomic indicators, as a regular exercise, to capture structural changes in the economy and improve the quality and representativeness of the indices.

In this direction, the base year of the all-India Index of Industrial Production (IIP) has also been revised from 2004-05 to 2011-12 to not only reflect the changes in the industrial sector but to also align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP), Wholesale Price Index (WPI).

Revisions in the IIP are necessitated to maintain representativeness of the items and producing entities and also address issues relating to continuous flow of production data. In the past, such changes were effected at the time of a revision in the base year.

With the release of the new series of IIP (base 2011-12), an institutional mechanism has been established for facilitating dynamic revision of the item list of products and the panel of factories, through a Technical Review Committee, chaired by Secretary, Ministry of Statistics & PI. This Committee will meet at least once a year for identifying new items that need to be included in the item basket and removing those that have lost its relevance in the industrial sector or are no longer being produced.

IIP in the revised series will continue to represent the Mining, Manufacturing and Electricity sectors. The revised series uses the National Industrial Classification (NIC) 2008 for the purpose of classification of industrial production. The unit coverage of IIP will, as before, cover entities in the organized sector units registered under the Factories Act, 1948.

The selection of items in the new series has been done at the 3 digit level of NIC for better representation as compared to selection at 2 digit level done in 2004-05 series.

At the broad level, the new series has a total of 809 items occurring in the manufacturing sector in the item basket (405 item groups), where 149 new items like Steroids and hormonal preparations, Cement clinkers, Medical/ surgical accessories, Pre-fabricated concrete blocks, refined Palm Oil have been added and 124 items such as Biaxially Oriented Polypropylene (BOPP) Films, Calculators, Colour TV picture tubes, Gutka have been deleted from the 2004-05 series which had 620 items (397 item groups) in the manufacturing sector.

Changes introduced by CSO, MoSPI in the new series of Index of Industrial Production with base 2011-12

1. Item Basket Selection

i. Selection of items has been done at 3-digit level of NIC 2008 from the Annual Survey of Industries (ASI) data by ensuring that the selected items cover at least 80 percent of the output of each 3 digit group. In comparison, the items in 2004-05 series were selected at 2-digit level of NIC. The selection at more disaggregated level will make the index more representative.

ii. By the above method, the items selected for new series of IIP with base 2011-12 comprised of 809 items, which were clubbed in 405 item groups pertaining to Manufacturing Sector. Mining and Electricity sectors will be represented by a single item index. In comparison, the 2004-05 series basket comprised of 620 items clubbed into 397 item groups for Manufacturing Sector and one item each for Mining and Electricity sectors. The item basket for the new series is placed at Appendix I.

iii. The basket of Mining Sector will now comprise of 29 minerals (Appendix II) identified by the Indian Bureau of Mines (IBM) as opposed to 62 minerals in the Mining basket of 2004-05 series. The decline in number of items is on account of 27 non-metallic minerals in the existing basket being declared as minor minerals in the MCDR Amendment Rules, 2016.

2. Weighting diagram

i. Weights at the sectoral level for the new series of IIP have been computed using the sectoral Gross Value Added (GVA) figures from National Accounts Statistics with base 2011-12.

ii. The sectoral weights have been distributed at 2, 3 and 4 digit levels of National Industrial Classification (NIC), 2008 using GVA figures from ASI 2011-12.

iii. The weights at 4 digit level of NIC have been distributed at product level using value of output figures from ASI 2011-12.

iv. In view of heavy subsidies involved in the industry group ‘Petroleum products’, it was decided to adjust the GVA from ASI with the actual subsidies provided by the Government of India to the manufacturers to offset the losses made by them while selling products at a price lower than the actual cost of production. The weights of other industries were appropriately readjusted.

3. Comparison of items and weights in the two series

Out of 407 item groups (including Mining and Electricity), 258 item groups are common with the existing basket, having a weight of approximately 84.6 percent (as per the new series with base 2011-12) while 124 item groups from existing basket comprising a weight of approximately 14.4 percent (as per the existing series with base 2004-05) are outdated/ obsolete and hence dropped (list of dropped items at Appendix III). The number of new items in the new series of IIP is 149 with a weight of approximately 15.4 percent.

4. Classification

National Industrial Classification (NIC)-2008 is being adopted in the new series instead of NIC-2004.

5. Source agencies

The monthly production data for the compilation of new series of IIP are now being made available to the CSO by fourteen (14) source agencies viz. (1) Indian Bureau of Mines (IBM), (2) Directorate of Sugar & Vegetable Oils, (3) Tea Board, (4) Coffee Board, (5) O/o the Textile Commissioner, (6) O/o the Jute Commissioner, (7) O/o the Coal Controller, (8) M/o Petroleum & Natural Gas, (9) Joint Plant Committee (Iron & Steel), (10) Railway Board, (11) D/o Industrial Policy & Promotion, (12) D/o Chemicals & Petrochemicals, (13) D/o Fertilizers and (14) Central Electricity Authority.

6. Work in progress

In the revised IIP basket, data for 109 item groups is being collected in value terms. Many of these item groups have production span of more than one month for which data will now be reported on ‘work in progress’ so that continuous production is accounted for and will address the fluctuations in production data. The value data reported for such items need to be deflated using an appropriate price deflator. The Wholesale Price Index (WPI) with base 2011-12 has been used for deflating value based items in the new series of IIP.

7. Frame of factories

i. The frame of factories was drawn from the results of 4 years of ASI to make it more representative and robust and was also duly augmented with frames maintained by source agencies of IIP, as and where applicable.

ii. The frame of factories for D/o Industrial Policy & Promotion (DIPP) which is the most important source in terms of number of items as well as weights underwent a significant expansion in terms of coverage and robustness. The number of factories under DIPP’s purview in the new series will increase by about 1400 in the current series. The number of factories reporting data for each item (except 13 items) will be at least 4 thereby reducing chances of exhibiting abnormal volatility during currency of the series after its launch. The 13 items for which number of factories are less than 4 have been retained in consultation with DIPP in view of their emerging nature and contribution at the industry level.

8. Use-Based Classification

The Use-Based Classification has been re-framed to ensure better representativeness. There are two new categories introduced in the new series namely “Primary goods” and “Infrastructure/ Construction goods”. At the same time the category “Basic goods” has been removed. The re-framed Use-based classifications (UBCs) to be adopted in the new series are as follows:

i. Primary goods- consisting of Mining, Electricity, Fuels and Fertilizers. This category will replace the existing category ‘Basic goods’;
ii. Capital goods- e.g. Machinery items;
iii. Intermediate goods- e.g. yarns, chemicals, semi-finished steel items, etc.;
iv. Infrastructure/ Construction goods – e.g. paints, cement, cables, bricks and tiles, rail materials, etc. This category has been constituted to categorize items which were neither part of Consumer durables nor Intermediate goods. This categorization assumes significance in wake of growing importance of infrastructure sector;
v. Consumer durables- e.g. garments, telephones, passenger vehicles, etc.; and
vi. Consumer nondurables- e.g. food items, medicines, toiletries, etc.

Summary of salient features of the new series with base 2011-12 are as under:

IIP in the new series will continue to consist of three sectors viz. Mining, Manufacturing and Electricity, as in the existing series.

The National Industrial Classification 2008 will be followed in the new series for the purpose of classification of products as per industries.

The Use-Based Classification has been revised to reflect the industrial segments and production more accurately as well as to map the products more accurately as per their use in the industries. The new use based classification includes Primary Goods, Intermediate Goods, Infrastruture/Construction Goods, Capital Goods, Consumer Durable Goods and Consumer Non Durable Goods

The coverage of the new series of IIP is limited to the Organized Sector only.

For enabling dynamic revision of the methodology of IIP including the item list and the panel of factories during the currency of a base year, a Technical Review Committee, chaired by Secretary, Ministry of Statistics &PI, will be constituted.

Due to the increasing significance of the electricity generation from renewable sources, it has been decided to include the same in the electricity generation figures for compilation of IIP in the new series.

The new series show higher growth rates in most months in the period April 2012 to March 2017, as compared to the existing series which is attributable to (i) shifting of base to a more recent period; (ii) increase in number of factories in panel for reporting data and exclusion of closed ones and (iii) inclusion of new items and exclusion of old ones.

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