Updation of the ICI Index

Syllabus: GS3/Economy

Context

• The Union Government has released an updated series of its Index of Core Industries (ICI).

The Monthly Index of the ICI

• It is a production volume index to provide an advance indication on production performance of industries of ‘core’ nature before the release of Index of Industrial Production (IIP) by the Central Statistics Office. 
• ICI measures collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel, Cement and Electricity. 
• The Index is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry.
• The Eight Core Index broadly has a combined weight of 37.90% in the Index of Industrial Production (IIP) and is published about 12 days prior to IIP.

Updation of the Index

• Change in Base Year: The new series of the index brings forward the base year to 2022-23. This makes the data more reflective of current reality, and thus makes it a more useful gauge of industrial activity.
  • The previous ICI had a base year of 2011-12, which was significantly outdated. 
• Change in Number of Sectors: It has increased the number of sectors covered to nine from the previous eight.
  • Owing to the intensive use of iron ore in industrial production, it has been added to the list of core industries.
• Other Updations: Other sectoral changes include calculating steel production on a gross output basis rather than a net output basis so as to bring this in line with the IIP.
  • In the coal sector, the updated series will only measure raw coal, and has excluded middling and washed coal. 
  • This change was made to eliminate the double counting that occurred in the previous series, as both middling and washed coal are made using raw coal.
• Redistribution Weightage of the Sectors in Index: Iron ore sector has been assigned a weight of 4.905% in the index, the coal sector has come down from 10.33% to 5.596%.
  • The natural gas sector revised from 6.88% to 3.841%, refinery products weightage reduced from 28.04% to 22.572%.
  • The electricity sector now makes up 30.932% of the entire index, up from the earlier 19.85%. 
  • The fertilizers sector saw its weightage increase marginally to 2.731% from 2.63%.

Significance

• Updated Base Year: Updating the base year to 2022–23 makes the index more representative of the current industrial structure, production patterns, and technological changes.
• Greater Accuracy and Comparability: Calculating steel production on a gross output basis aligns the ICI methodology with the Index of Industrial Production (IIP), ensuring consistency and improving comparability across industrial indicators.
• Elimination of Double Counting: Restricting the coal sector to raw coal and excluding middling and washed coal removes duplication in production estimates.
• Enhanced Reliability of Industrial Indicators: The methodological revisions improve the precision, credibility, and statistical robustness of the index, making it a more reliable indicator of industrial growth and economic performance.

Source: TH