Iip Index Of Industrial Production

Index of Industrial Production (IIP)

Primer

What is IIP…?

Index which details out the growth of Industrial sectors in the economy

One of the prime indicators of the economic development and the short-term economic analysis

Measures trend in the behavior of industrial production over a period of time with reference to a chosen base year

Origin and History

The office of economic advisor ministry of commerce and industry made the first maiden attempt of compilation and release of IIP with base year 1937

To capture the changes in the industrial sector, the state series of IIP is revised from time to time by dropping obsolete items, and adding new items and also shifting the base year to a more recent one

The base year of the all-India IIP which commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81

The current base year is 1993-94

The general scope of the IIP as recommended by the United Nations Statistical Office (UNSO) is defined to include mining, manufacturing, electricity, construction and gas sectors

Due to constraints of data availability the present general IIP constitutes of mining, manufacturing (organised and unorganised) and electricity

Functions, Usage and Importance

Functions

To prepare monthly as well as annual industrial production To comprise main characteristics of Annual Survey of Industries (ASI) returns on

district and group level

Usage and Importance

Used by the planners, the state and the central government and at different levels for different policy decisions and other purposes

Used by the state government for preparation of state income estimates of manufacturing sector

Used by many countries in the annual and quarterly national accounts in many countries

The monthly IIP helps many countries to use it as a reference series in the compilation of cyclical indicators which helps to predict the future turning points in business cycle

Investors can use the IIP of various industries to examine the growth in the respective industry

Data Sources

The responsibility for compilation and publication of IIP was vested with Central Statistical Organisation after its inception in 1951

CSO receives monthly production data from as many as 14 source agencies, who collect data from the production units except for Railways, for which the consolidated data are supplied by the Railway Board

Department of Industrial Policy & Promotion (DIP&P) supplies data on as many as 213 out of 285 group of items in the manufacturing sector

The data on Electricity sector is furnished by the Central Electricity Authority

The index relating to Mining and Quarrying sector is supplied by the Indian Bureau of Mines, Nagpur

They are all summed up to arrive at the general IIP index

Index Calculation (1/4)

The index is a simple weighted arithmetic mean of production relatives calculated by using Laspeyre’s formula:

I= Σ (Wi . Ri)/Σ Wi

Where, I is the Index, Ri is the production relative of the ith item for the concerned month, Wi is the weight allotted to the ith item

It is compiled in stages, initially for items, then for sub-groups, groups and major groups, sectors and finally for all sectors combined

The index of monthly production covering 61 items supplied by Indian Bureau of Mines is dovetailed with indices of manufacturing and electricity sectors for compiling the general IIP

Index Calculation (2/4) The IIP Index is composed of three broad heads namely Manufacturing, Mining and Electricity,

with weight 79.36%, 10.2% and 10.5% respectively Let us examine the detailed breakup of the manufacturing sector along with the indexed

production of each of the sub headsDescription Weight (Wi) Production (Ri) Wi*Ri

Basic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.00 104 1456Machinery and Equipment other than Transport equipment 9.57 115 1100.55Food Products 9.08 203 1843.24Basic Metal and Alloy Industries 7.45 116 864.2Rubber, Plastic, Petroleum and Coal Products 5.73 100 573Cotton Textiles 5.52 287 1584.24Non-Metallic Mineral Products 4.40 52 228.8Transport Equipment and Parts 3.98 77 306.46Metal Products and Parts, except Machinery and Equipment 2.81 88 247.28Wood and Wood Products; Furniture and Fixtures 2.70 50 135Paper & Paper Products and Printing, Publishing & Allied Industries 2.65 65 172.25Other Manufacturing Industries 2.56 31 79.36Textile Products (including Wearing Apparel) 2.54 20 50.8Beverages, Tobacco and Related Products 2.38 68 161.84Wool, Silk and man-made fibre textiles 2.26 56 126.56Leather and Leather & Fur Products 1.14 66 75.24Jute and other vegetable fibre Textiles (except cotton) 0.59 89 52.51Sum 79.36 9057.33


Thus the manufacturing Index stands at:

I= Σ (Wi . Ri)/Σ Wi = 9057/79.36 = 114.13

Similarly the mining and the electricity index can be calculated and let us take their values as 52.26 and 85.96 respectively

Thus the value of IIP index for the month ‘x’ is equal to

= Manufacturing Index + Mining Index + Electricity Index = 114.13 + 52.26 + 85.96 = 252.35

Now let us assume that the production in each of the sub heads of the manufacturing index grows in the next month say ‘y’


Description Weight (Wi) Production (Ri) Wi*RiBasic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.00 106 1484Machinery and Equipment other than Transport equipment 9.57 124 1186.68Food Products 9.08 210 1906.8Basic Metal and Alloy Industries 7.45 110 819.5Rubber, Plastic, Petroleum and Coal Products 5.73 98 561.54Cotton Textiles 5.52 290 1600.8Non-Metallic Mineral Products 4.40 54 237.6Transport Equipment and Parts 3.98 79 314.42Metal Products and Parts, except Machinery and Equipment 2.81 91 255.71Wood and Wood Products; Furniture and Fixtures 2.70 52 140.4Paper & Paper Products and Printing, Publishing & Allied Industries 2.65 67 177.55Other Manufacturing Industries 2.56 32 81.92Textile Products (including Wearing Apparel) 2.54 21 53.34Beverages, Tobacco and Related Products 2.38 69 164.22Wool, Silk and man-made fibre textiles 2.26 55 124.3Leather and Leather & Fur Products 1.14 68 77.52Jute and other vegetable fibre Textiles (except cotton) 0.59 91 53.69Sum 79.36 9239.99

• Thus the new manufacturing index value is 9239.99/79.36 = 116.43

• Corresponding value for the mining and electricity index is at 54.26 and 88.96 respectively

• Thus the value of IIP index is at the end of month ‘y’ stands at 116.43 + 54.26 + 88.96 = 259.65

• Thus the Index has grown by 2.89% in month ‘y’ compared to its value in month ‘x’

• This signifies a growth in the industrial production in India

Salient features of the series with base 1993-94 The latest series contains 543 items grouped into 287 item groups

The 287 items consists of 285 item groups of manufacturing sector and one each of mining and electricity sectors

The item basket identified captures about 80% of the output of the manufacturing sector

It has allocated individual weights to all the 18 items of earlier series from the small-scale industries (SSI) sector

This series has followed the National Industrial Classification NIC-1987

The quick estimates are being released with a time lag of six weeks from the reference month

These quick estimates for a given month are revised twice in the subsequent months

Problems of the new series

The performance of the unorganized manufacturing sector could not be adequately reflected due to non-availability of monthly production data in respect of sufficient number of items of this sector

Dropping of important new items adversely affected the representatives of the market basket and the market indices and hence, the source agencies could not furnish monthly time-series production data

The quality of monthly production data suffers from substantial non-response on the part of manufacturing units

The source agencies do not adopt any standard estimation techniques for estimation of non-responded production factories

Over or under estimation of item-wise production data since the frame of factories are not maintained by the source agencies

Index Structure

Manufacturing Sector

The Manufacturing sector has the maximum weightage in the IIP index It comprises of 478 items grouped into 285 item groups It is divided into two sub groups

Producer Goods: Producer Goods produce goods which are used as raw material in further production processes

Used Based Goods: Used Based Goods are goods produced for final consumption. It is further sub divided into- Basic Goods, Capital Goods, Intermediate Goods and

Consumer Goods. The consumer goods segment is again subdivided into the durable and the non

durable goods segment. In terms of weight the basic goods segment contributes the most followed by the

intermediate and consumer non durables

Mining & Electricity Sector

Mining contributes only 10.5% in the IIP index The electricity segment a meager 10.2% Electricity is divided to three sub-sectors

Hydro Thermal Nuclear

The above are all clubbed into 1 item-group Mining has numerous no. of items which are again all clubbed into 1 item group

Basic Goods Basic goods are goods wanted not for its

own sake but for the goods derived from it, for examples, textiles which are wanted for the apparels made from them

It contributes 35.5%, the highest in the manufacturing sector

It consists of 65 items Mineral Index Consists of 2 parts: mineral

fuels and metallic ores The top 5 companies dealing in the

different basic goods are stated in the next slide

They are sorted according to their market cap in a decreasing order barring some products

Cos. In electricity were sorted according to their production capacity

Top 5 Components of Basic Goods Index

M ineral Index, 29.50%

Electricity, 28.64%

Nitrogenous fertilizers,

5 .10%Cement all

kinds, 5.60%

Bars and rods, 5 .09%

Remaining Others, 26.23%

Top 5 companies in Basic Goods Segment (1/3)



Capital Goods

Raw materials used in the production of finished products, for e.g.: machines and tools

Capital good segment is probably the most important constituent in terms of its significance because it helps in future growth of other segments

It contributes 9.7% in the IIP which is the least consisting of 55 items

The top 5 companies dealing in the different capital goods are stated in the next slide

They are sorted according to their market cap in a decreasing order

Only 2 cos. were found in off-shore platforms category

No cos. were found in the laboratory instruments category

Top 5 Components of Capital Goods Index


Diesel engines (IPP), 8.57%

Industrial machinery,

5.50%

Laboratory and scientific instruments,

4.48%

Complete tractors, 4.73%

Well/off shore platforms,

7.32%

Top 5 Companies in Capital Goods Segment (1/2)

Top 5 Companies in Capital Goods Segment (2/2)

Intermediate Goods

Goods that are used in the production of other goods for e.g.: lumber, sugar

It contributes 26.4% in the IIP which is the 3rd highest

It consists of 93 items The top 5 companies dealing in the

different intermediate goods are stated in next slide

They are sorted according to their market cap in a decreasing order

No cos. Were found in the particle board category

Top 5 Components of Intermediate Goods Index


Cotton yarn (including SSI),

17.16%

Filament yarn, 6 .63%

Plywood commercial,

6.32%

Particle board, 3 .91%

PVC pipes & tubes, 5.73%

Top 5 Companies in Intermediate Goods Segment (1/2)

Top 5 Companies in Intermediate Goods Segment (2/2)

Consumer Durables

Goods that are able to extended for a period of time without deterioration and yields services or utility overtime for e.g.: cars appliances

It contributes 5.1% in the consumer goods which is least


different durable goods are stated in next slide


Cos. in passenger cars and t.v. receivers were sorted according to their production capacity

Cos. In telephone instruments were sorted according to their sales value

Top 5 components of Consumer Durables Index

Giant tyres, 7 .73%

Passenger cars, 8 .34%

T.V. receivers, 9 .75%

Scooter and mopeds, 11.42%

Telephone instruments,

12.17%

Remainig Others, 55.69%

Top 5 companies in Consumer Durable Goods Segment (1/2)

Top 5 companies in Consumer Durable Goods Segment (2/2)

Consumer Non-Durables

A good which is completely used up by the consumer for e.g.: food, clothing

It contributes 23.2% in the consumer goods which is the highest


different non-durable goods are stated in next slide


No cos. could be found in the 100% non-cotton cloth category

Only 2 cos. Were found in cotton hosiery which were sorted according to their sales value

Top 5 Components of Consumer Non-Durables Index

Paper & paper board (IPP),

5.95%

100% Non-cotton cloth,

5.18%

Wheat flour/maida,

9.23%

Sugar, 9.67%

Cotton hosiery cloth,

10.94%

Remainig Others, 59.48%

Top 5 companies in Consumer Non-Durable Goods Segment (1/2)

Top 5 companies in Consumer Non-Durable Goods Segment (2/2)

Performance Of IIP

The general IIP index (281.9) for May’09 reflects the positive effect of interest rate cuts, and government stimulus measures to revive demand and investment

Factory prod. is likely to increase further as FM Pranab Mukherjee projected high government spending in infrastructure and eased some of the tax burden on companies and consumers

Though electricity has increased but it had no impact on IIP due to its very low weigtage in it

Demand for Cons. durable goods increased because of stimulus packages such as duty reductions and sixth pay commission

Decrease in the capital goods and consumer non-durables bought a decrease in manufacturing due to their significant contribution

Basic and Intermediate Goods though account for a significant portion of IIP could not affect it because of its insignificant growth

The manufacturing sector declined overall together with the mining which led to a fall in the IIP

Y-o-Y Change

0%1%2%3%4%5%6%7%

IIP M anufacturing M ining Electricity

Chan

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Apr-M ay'08-'09 Apr-M ay'09-'10

Y-o-Y Change

-9%-6%-3%0%3%6%9%

12%15%18%

Basic Goods Capital Goods Interm Goods Cons. Durable Cons. Non-Durable

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Apr-M ay'08-'09 Apr-M ay'09-'10

Growth-rate change over-time

IIP was seen to perform very well during previous years but it slumped down in the year 2009 because of economic slowdown

Manufacturing was seen performing consistently since previous years but it started falling down and ultimately reached a negative in March’09

Mining and Electricity are both the sectors which have been doing well in previous years and are expected to continue the trend in the coming years

Y-o-Y Growth

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M anufacturing M ining Electricity

IIP (Y-o-Y Change)

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Growth-rate change in Consumer Goods segment

Capital Goods is a segment which had performed well in the years like 2005, 2006 and 2007 but has exhibited quite an irregular pattern of growth in 2008 and 2009

Intermediate goods had performed well in years 2006, 2007 but then started sliding down and till now could not regain its growth-level

Basic goods growth has slumped down in recent years though it performed well in previous years

Capital Goods (Y-o-Y Change)

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Y-o-Y Change

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Basic Goods Intermediate Goods Consumer Goods

Consumer Durables and Non-Durables

In consumer goods there are two divisions-durables and non-durables

Durable goods had not performed well in years like 2007,2008 but had been doing really well since previous few months of 2009

Non-durable goods was more or less performing since previous years but has really gone down in the FY2009-10

Overall, the consumer goods sector has been performing consistently

Y-o-Y Change

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Durable Goods Non-Durable Goods

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Economy & Finance

Iip Index Of Industrial Production