Government Updates Industrial Basket to Include Diverse Range of Goods and Services
India Updates Factory Output Gauge to Reflect Changes in Economy
The Indian government has announced a major overhaul of its factory output gauge, the Index of Industrial Production (IIP), to better reflect the changes in the country's economy. The Ministry of Statistics and Programme Implementation (MoSPI) is revising the base year of the IIP from 2011-12 to 2022-23, with the new series planned for release on June 1.
As part of the revision, the government is adding 120 new item groups to the series, while 64 will be dropped. The new IIP basket will cover 463 item groups, up from 407 in the existing series. Manufacturing item groups will rise from 405 to 455, while mining and quarrying will expand from one broad group covering 29 minerals to three groups covering 44 minerals. Electricity and gas supply will expand from one group to three, while water supply, sewerage and waste management will be added as two new item groups.
The update is an attempt to align the IIP with the changed structure of the economy, where newer products and technologies have become more relevant while some older products have lost weight in industrial activity. The revision is in line with other indicators as well. In February, the statistics ministry had revised the base year of GDP to 2022-23, after a hiatus of over a decade as previous attempts had suffered setbacks due to data quality issues. The consumer inflation basket was revised to 2024 base in the same month as well.
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The new series will retain the existing broad coverage of mining, manufacturing and electricity, but will also add minor minerals, rare earth minerals, gas supply, water supply, sewerage and waste management. The government plans to release more granular indices, including separate indices for renewable and non-renewable electricity generation, gas supply, fuel minerals, metallic minerals, non-metallic minerals, water supply, and sewerage and waste management.
A key change is the treatment of "not elsewhere classified" or n.e.c. items. In the 2011-12 series, such items were removed from the item selection frame and their output was redistributed among other products in the same industry group. In the new series, n.e.c. items will be retained after field officers revisit factories to identify the specific products reported under these categories. This is expected to improve coverage of niche, emerging and previously under-represented manufacturing segments.
| Category | Existing Series | New Series |
|---|---|---|
| Item Groups | 407 | 463 |
| Manufacturing Groups | 405 | 455 |
| Mining and Quarrying Groups | 1 (29 minerals) | 3 (44 minerals) |
| Electricity and Gas Supply Groups | 1 | 3 |
| Water Supply, Sewerage and Waste Management Groups | 0 | 2 |
Note: The new series is expected to provide a more accurate representation of India's industrial production, reflecting the changes in the country's economy.
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Investor Takeaway
The government's update to the industrial production index may provide a more accurate reflection of the economy, but its impact on investor decisions remains to be seen.
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