Why you cannot ignore IIP data

When the rest of the world is talking about a recession, the Emerging and Developing Asian economies are expanding/ booming.

- Madhusudhanan S

Introduction 

According to the IMF blog, Asia’s emerging and developing economies are expected to have a growth rate of 5.3% this year. The major contributor to this growth will be India and China. Most of the multilateral rating agencies are talking about the service sector and hardly speak about industrial production.

No doubt the service sector is one of the major contributors to the growth of the Indian economy. But, industrial production is also one of the contributors to the growth. In this article, we are going to look at what is meant by the Index of Industrial Production (IIP).

What is Industrial Production (IIP)?

The Index of Industrial Production (IIP) conveys the status of production in the industrial sector of an economy in a given period of time, in comparison with a fixed reference point in the past. In simple words, it is an index that details the growth of various sectors in an economy. Indian IIP will focus on sectors like mining, electricity and manufacturing.

History of Industrial Production (IIP):

Many may not be aware that India was the first country to officially attempt to compute the Index of Industrial Production (IIP). With 1937 as the base year covering 15 important industries (at that time), The Office of the Economic Advisor, Ministry of Commerce and Industry made its first attempt at the compilation and release of IIP. At that time, these 15 important industries were accounting for more than 90% of total industrial production.

The first time IIP used the year 1937 as its reference point. It contained only 15 products. Since then, the criteria for the base year as well as the number of products have been revamped nine times (recently in 2011-12).