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Indian Economy

Index of Industrial Production (IIP)

  • 15 Nov 2019
  • 3 min read

Why in News

The Index of Industrial Production (IIP) for the month of September 2019 has contracted by 4.3 % as compared to the month of September 2018.

  • This is the first time after November 2012 that all three broad-based sectors (Mining, Manufacturing, and Electricity) have contracted and the lowest monthly growth in the 2011-12 base year series.

Reasons for Recent IIP Contraction

  • Lower agricultural growth impacting rural demand adversely: India is witnessing agricultural distress because of multiple factors like lack of easy credit, the declining average size of farm holdings, poor policy, and planning, etc.
  • A slowdown in the Indian industrial sector: Indian industrial sector is facing slowdown driven by disruptive technologies, changes in consumer behaviour, changing global industrial scenario, etc.
  • Structural growth slowdown in the Indian Economy: India is facing a long-term, deep-rooted economic slowdown which would require the government to undertake some structural policies like economic reforms of 1991.

Index of Industrial Production

  • The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
  • It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation.
  • IIP is a composite indicator that measures the growth rate of industry groups classified under:
    • Broad sectors, namely, Mining, Manufacturing, and Electricity.
    • Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
  • Base Year for IIP is 2011-2012.
  • The eight core industries of India represent about 40% of the weight of items that are included in the IIP.
  • Significance of IIP :
    • IIP is the only measure on the physical volume of production.
    • It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc, for policy-making purposes.
    • IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates.

Source: TH

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