Sunday, August 5, 2012

Economic Indicator - IIP - Index of Industrial Production

IIP - Index of Industrial Production is an Economic Indicator tracking the production activities on a monthly /quaterly/half yearly/annual basis in the country . Like every other indicator , IIP numbers are produced with a reference point in the past . In case of India , the revised benchmark is 1993-94 , for US its 2002 with level of 100 . The calculated data can be tabulated to form a time series in order to compare the output across various years .

The IIP numbers are calculated in 3 ways as described below :
(1)Use Based -  The industry is categorized broadly as Consumer Goods, Durable and Non durable goods ,Basic and Intermediate goods . 
(2) Sector wise - Industry is categorized sector wise like Electricity , Mining , Manufacturing etc
(3)Detailed Sector - Industry is categorized in to various detailed sectors, the link for which has been provided below . 
Sectors Under Consideration for IIP Calculation : Click on the link here to get the complete list of sectors . Click here

Data Sources for calculation of IIP (for India) :  .The data for the IIP estimate is supplied by 15 source agencies which include Department of Industrial Policy and Promotion, Indian Bureau of Mines, Central Statistical Organisation and Central Electricity Authority, among others.

How is IIP index calculated : IIP index is calcualted with the Laspeyre's formula . The calculation involves following steps . 
(1) Identifying the weights of the various sectors on Product level , Product Group level and Industry level . These weights will be identified on the basis of the total output in sales or gross output value .  The weights and the sectors are updated periodically to incorporate the changing market scenario and the economic dynamics . Weights on the product level can be updated annually while those of Industry level can be updated every 5 years
(2) Once the weights are calculated the IIP number is calculated ,The index is a simple weighted arithmetic mean of production relatives calculated by using Laspeyre’s formula
Where I is the Index, Ri is the production relative of the i-th item for the month in
question and Wi is the weight allotted to it based on Gross Output.
The item-wise indices are vertically aggregated at 2-digit of industrial classification
based on weighted average, weights are proportionate to Gross Value Added.

Information Sources :