There is plenty that ails India's index of industrial production
Mint Mumbai|February 15, 2024
The ITP is old and rusty but GST data can be used to formulate an indicator that offers a better picture of economic change
- TCA ANANT
There is plenty that ails India's index of industrial production

The index of industrial production (IIP) has in recent years been coming under increasing criticism for not being relevant for contemporary users. A recent op-ed in Mint (India's IIP is losing its relevance as a lead indicator of economic growth') (bit.ly/42D5YvE) is a good example.

These criticisms are valid, and to better understand the disaffection, it is useful to review the manner in which the series is constructed.

The IIP is one of the oldest statistical products produced by the National Statistical Office, dating back to pre-independence. The index is collected through a large number of source agencies, many of which have their roots in the administrative machinery which evolved in the 1950s' 'command economy. Many of these agencies have lost their relevance over the years. For some, supplying data for the IIP seems to be the only reason for their continued existence.

The article referred to above points out that IIP growth does not match India's real GDP growth.

This is not just a problem with the current IIP series, but has in fact been a problem for at least the last three revisions of the IIP series. In each revision, there have been a few years of overlap. In overlapping periods, growth in the new series tends to be higher than that of the old series (the only exception is the two years after the 2008 financial crisis).

Another way to see the IIP's dampened growth performance is to compare it with the Annual Survey of Industries (ASI). The attached graph takes data from three IIP series' (base years.

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