The National Statistical Office has recently released data indicating that the Index of Industrial Production (IIP) accelerated at a rate of 4.5% in February, compared to the previous year. This report comes as news of great significance, shedding light on the varying growth rates in different sectors of the economy.
The Driving Forces Behind the IIP Growth
The impressive acceleration of the IIP is a direct result of heightened output in several industrial sectors, including mining, electricity, and manufacturing. In February 2020, the eight core sector industries recorded a growth of 5.5%, marking the highest increase in 11 months.
Among these sectors, mining led the charge with a robust 10% production growth, followed closely by the electricity sector’s 8.1% growth. Manufacturing was not far behind, recording an output growth rate of 3.2%. On the other hand, certain sectors like auto, computer, and electronics manufacturing experienced negative growth.
February marked the second consecutive month of enhanced industrial output, following a contraction in December. However, the subsequent Covid-19 lockdown precipitated a predicted plunge in the IIP for March due to most businesses halting operations.
Understanding the Index of Industrial Production
The Index of Industrial Production (IIP) functions as a barometer for growth rates in various industry groups within the economy over a specific time period. The National Statistical Office (NSO), operating under the Ministry of Statistics and Programme Implementation, is responsible for compiling and publishing this monthly index.
The IIP measures the growth rate of industry groups classified under broad sectors like Mining, Manufacturing, and Electricity, and use-based sectors such as Basic Goods, Capital Goods, and Intermediate Goods. The base year for IIP calculation is 2011-2012.
Significantly, India’s eight core industries hold approximately 40% weightage in the calculation of the IIP.
The Relevance and Importance of IIP
The Index of Industrial Production serves as the sole mechanism to quantify the physical volume of production. It is instrumental in government policy-making, with key institutions like the Ministry of Finance and the Reserve Bank of India relying heavily on it.
Additionally, the IIP retains high relevance for the computation of the quarterly and advance GDP estimates. Therefore, fluctuations in the IIP directly impact the nation’s GDP, underlining the critical responsibility of monitoring and managing this index for the health of the Indian economy.
Source: The Hindu