About Index of Industrial Production (IIP):
- It is one of the prime indicators of economic development for the measurement of trends in the behavior of industrial production over a period of time with reference to a chosen base year.
- It is a short-term indicator measuring industrial growth until the actual result of detailed industrial surveys become available.
- It indicates the relative change in physical production in the field of industries during a specified year as compared to the previous year.
- It is computed and published by the Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation, on a monthly basis.
- Calculation:
- The IIP is a quantum index, the production of items is expressed in physical terms. However, the unit of reporting in respect of certain items like machinery, machine tools, shipbuilding, etc. is in value terms.
- It is compiled as a simple weighted arithmetic mean of production relatives by using Laspeyre’s formula.
- In order to remove the effect of price rises from the index, the production figures of such items are deflated on the basis of Wholesale Price Indices (Base 2011-12), compiled by the Office of Economic Adviser, Ministry of Commerce and Industry, before the compilation of the index.
- Base Year:
- The base year is always given a value of 100.
- The current base year for the IIP series in India is 2011-12.
- So, if the current IIP reads as 116, it means that there has been 16% growth compared to the base year.
What is Laspeyre’s formula?
- It was proposed by German economist Étienne Laspeyres (1834–1913) for measuring current prices or quantities in relation to those of a selected base period.
- It is computed by taking the ratio of the total cost of purchasing a specified group of commodities at current prices to the cost of that same group at base-period prices and multiplying by 100.
- The base-period index number is thus 100, and periods with higher price levels have index numbers greater than 100.
