The Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 for the month of August 2018 stands at 127.4, which is 4.3% higher as compared to the level in the month of August 2017. The cumulative growth for the period April-August 2018 over the corresponding period of the previous year stands at 5.2%.
The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of August 2018 stand at 92.2, 129.8 and 167.2 respectively, with the corresponding growth rates of (-) 0.4%, 4.6% and 7.6% as compared to August 2017. The cumulative growth in these three sectors during April-August 2018 over the corresponding period of 2017 has been 3.9%, 5.4% and 5.8% respectively.
The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, revises the base year of the macroeconomic indicators, as a regular exercise, to capture structural changes in the economy and improve the quality and representativeness of the indices. In this direction, the base year of the all-India Index of Industrial Production (IIP) has also been revised from 2004-05 to 2011-12 to not only reflect the changes in the industrial sector but to also align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP), Wholesale Price Index (WPI).
Use-Based Classification (UBC) has been re-framed by replacing Basic Goods with Primary Goods and introducing a new Infrastructure/ Construction goods category. The former change is to improve clarity on the movement of IIP of Primary Goods in industry and aims to address the linkage of production with Infrastructure and Construction sector.
Basic Goods are good 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, Capital good is any good deployed to help increase future production. The most common capital goods are property, plant and equipment, Consumer goods are any goods that are not capital goods; they are goods used by consumers and have no future productive use.
IIP growth data is keenly awaited by markets every month. The data is released by the CSO (Central Statistical Office) on the 11th of every month. Why does the market keenly await the IIP data and what does IIP mean for your Investments.
What is IIP Number?
IIP stands for index of industrial production and details the growth of industrial sector in India, which is one of the key indicators to measure economic development in the country. IIP is a short term indicator, which is useful to gauge the rate of industrial growth and given that it is published with a lag of 40 days, IIP provides past trends and not future outlook.
IIP measures the status of production in industrial activity for a given period of time with reference to a chosen base year i.e. 2011-12, which is taken as 100, and used as a reference to calculate the growth (or decline) for the current period.The difference between the current number and the base year number gives a fairly good idea of how much industry has grown.
IIP is compiled using data received from 15 source agencies. (i) Department of Industrial Policy & Promotion (DIPP); (ii) Indian Bureau of Mines; (iii) Central Electricity Authority; (iv) Joint Plant Committee, Ministry of Steel; (v) Ministry of Petroleum & Natural Gas; (vi) Office of Textile Commissioner; (vii) Department of Chemicals & Petrochemicals; (viii) Directorate of Sugar & Vegetable Oils; (ix) Department of Fertilizers; (x) Tea Board; (xi) Office of Jute Commissioner; (xii) Office of Coal Controller; (xiii) Railway Board; (xiv) Office of Salt Commissioner; and (xv) Coffee Board.
Manufacturing contributes to 77.63%, Mining contributes to 14.37% & Electricity contributes 7.99% to the IIP calculation.
Importance of IIP for Markets
As IIP shows status of Industrial activity, you can find out whether activity has increased, decreased or remained constant. If IIP growth is low, it means lower industrial production and you can then delve further on why industry production is low. Is it because of weak consumer spending, or unavailability of key raw materials or any other reason. Low industrial production result in lower corporate sales and profits, which will directly affect the markets and stock prices and your investments.
Growth in IIP is a good sign for Cement, Steel, Power, Capital Goods & Manufacturing industries. Mining Sector contributes approx 14% to the IIP. Growth figures can indicate how mining companies are going to fare in the coming quarters.
The IIP data doesn’t include the banking sector for its calculation, but if IIP index is increasing it means production is increasing & production and investment activity is usually financed through banks. Hence, if industrial production & capital spending is increasing then it is likely to have a positive impact on the banking sector.