Base Year Revision of Index of Industrial Production (IIP)

Syllabus: GS3/ Economy

Context

• The Ministry of Statistics and Programme Implementation (MoSPI) is set to revise the base year of the Index of Industrial Production (IIP) to 2022–23, aligning it with the new base year proposed for GDP estimation.

Need for Revising the Base Year

• The IIP is a key short-term indicator of industrial activity, used by the government, RBI, and researchers for policymaking, forecasting, and national accounts.
• The last IIP base year revision was 2011–12 and since then, major technological changes, product diversification, and digitalization have reshaped industrial production.
  • India’s economic structure has transformed: services contr2ibute 62.5% of GVA, agriculture 15%, and industry 22%, indicating scope for growth.
• MoSPI’s Technical Advisory Committee for Base Year Revision of IIP (TAC–IIP) has recommended aligning the IIP base year with 2022–23, to capture these structural and technological shifts.
• The United Nations has recommended that the base period of the index number should be revised quinquennially (every five years).

Proposed Improvements in the New IIP Series

• Expanded Scope and Coverage: The item basket is being revised to eliminate outdated products (e.g., fluorescent tubes, kerosene) and include modern goods like LED bulbs, laptops, vaccines, and aircraft components.
  • For the first time, minor minerals and gas supply will be covered, aligning with International Recommendations for the Index of Industrial Production (IRIIP, 2010).
• Refinement of Data and Classifications: MoSPI reviewed 276 “not elsewhere classified” (n.e.c.) items, meaning they didn’t fit neatly into any specific category.
  • MoSPI reassigned 95% of these items to specific product categories, leaving only 5% unassigned.
• Substitution of Non-operational Factories: Earlier, factories remained in the sample even after closure or production change, leading to data distortion.
  • The new system introduces a methodology for timely replacement of such factories, ensuring continuity and comparability through overlapping data.
• Seasonal Adjustment of Data: A seasonally adjusted IIP series will be introduced for better identification of underlying trends and cyclical movements, improving short-term economic forecasting and policy analysis.
• Integration with Digital Databases: The integration of GST data and increased digital adoption in industrial statistics will enhance accuracy, reduce reporting lag, and improve real-time monitoring.

What are the Challenges?

• Data Gaps and Coverage Issues: Some sub-sectors, especially MSMEs and informal units, may remain underrepresented due to data constraints.
• Timeliness of Data Collection: Ensuring real-time data flow from diverse industrial establishments remains a challenge.
• Transition Management: Ensuring comparability with the old series and managing statistical breaks during transition will require careful calibration.

Way Ahead

• Strengthen Industrial Surveys: Broaden coverage of the Annual Survey of Industries (ASI) and use of technology-based reporting mechanisms.
• Integration with Digital Ecosystems: Utilize e-way bills, GSTN, and MCA21 data to enhance industrial statistics’ timeliness and reliability.
• Periodic Updates: Ensure base year revisions every 5–7 years to keep pace with India’s rapidly evolving industrial structure.
• Capacity Building: Train state and local statistical staff for data collection and validation to improve data quality at source.

Source: IE