iip index of industrial production
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DESCRIPTION
Index which details out the growth of Industrial sectors in theeconomy One of the prime indicators of the economic development and theshort-term economic analysis Measures trend in the behavior of industrial production over aperiod of time with reference to a chosen base yearTRANSCRIPT
Index of Industrial Production (IIP)
Primer
What is IIP…?
Index which details out the growth of Industrial sectors in the economy
One of the prime indicators of the economic development and the short-term economic analysis
Measures trend in the behavior of industrial production over a period of time with reference to a chosen base year
Origin and History
The office of economic advisor ministry of commerce and industry made the first maiden attempt of compilation and release of IIP with base year 1937
To capture the changes in the industrial sector, the state series of IIP is revised from time to time by dropping obsolete items, and adding new items and also shifting the base year to a more recent one
The base year of the all-India IIP which commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81
The current base year is 1993-94
The general scope of the IIP as recommended by the United Nations Statistical Office (UNSO) is defined to include mining, manufacturing, electricity, construction and gas sectors
Due to constraints of data availability the present general IIP constitutes of mining, manufacturing (organised and unorganised) and electricity
Functions, Usage and Importance
Functions
To prepare monthly as well as annual industrial production To comprise main characteristics of Annual Survey of Industries (ASI) returns on
district and group level
Usage and Importance
Used by the planners, the state and the central government and at different levels for different policy decisions and other purposes
Used by the state government for preparation of state income estimates of manufacturing sector
Used by many countries in the annual and quarterly national accounts in many countries
The monthly IIP helps many countries to use it as a reference series in the compilation of cyclical indicators which helps to predict the future turning points in business cycle
Investors can use the IIP of various industries to examine the growth in the respective industry
Data Sources
The responsibility for compilation and publication of IIP was vested with Central Statistical Organisation after its inception in 1951
CSO receives monthly production data from as many as 14 source agencies, who collect data from the production units except for Railways, for which the consolidated data are supplied by the Railway Board
Department of Industrial Policy & Promotion (DIP&P) supplies data on as many as 213 out of 285 group of items in the manufacturing sector
The data on Electricity sector is furnished by the Central Electricity Authority
The index relating to Mining and Quarrying sector is supplied by the Indian Bureau of Mines, Nagpur
They are all summed up to arrive at the general IIP index
Index Calculation (1/4)
The index is a simple weighted arithmetic mean of production relatives calculated by using Laspeyre’s formula:
I= Σ (Wi . Ri)/Σ Wi
Where, I is the Index, Ri is the production relative of the ith item for the concerned month, Wi is the weight allotted to the ith item
It is compiled in stages, initially for items, then for sub-groups, groups and major groups, sectors and finally for all sectors combined
The index of monthly production covering 61 items supplied by Indian Bureau of Mines is dovetailed with indices of manufacturing and electricity sectors for compiling the general IIP
Index Calculation (2/4) The IIP Index is composed of three broad heads namely Manufacturing, Mining and Electricity,
with weight 79.36%, 10.2% and 10.5% respectively Let us examine the detailed breakup of the manufacturing sector along with the indexed
production of each of the sub headsDescription Weight (Wi) Production (Ri) Wi*Ri
Basic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.00 104 1456Machinery and Equipment other than Transport equipment 9.57 115 1100.55Food Products 9.08 203 1843.24Basic Metal and Alloy Industries 7.45 116 864.2Rubber, Plastic, Petroleum and Coal Products 5.73 100 573Cotton Textiles 5.52 287 1584.24Non-Metallic Mineral Products 4.40 52 228.8Transport Equipment and Parts 3.98 77 306.46Metal Products and Parts, except Machinery and Equipment 2.81 88 247.28Wood and Wood Products; Furniture and Fixtures 2.70 50 135Paper & Paper Products and Printing, Publishing & Allied Industries 2.65 65 172.25Other Manufacturing Industries 2.56 31 79.36Textile Products (including Wearing Apparel) 2.54 20 50.8Beverages, Tobacco and Related Products 2.38 68 161.84Wool, Silk and man-made fibre textiles 2.26 56 126.56Leather and Leather & Fur Products 1.14 66 75.24Jute and other vegetable fibre Textiles (except cotton) 0.59 89 52.51Sum 79.36 9057.33
Index Calculation (3/4)
Thus the manufacturing Index stands at:
I= Σ (Wi . Ri)/Σ Wi = 9057/79.36 = 114.13
Similarly the mining and the electricity index can be calculated and let us take their values as 52.26 and 85.96 respectively
Thus the value of IIP index for the month ‘x’ is equal to
= Manufacturing Index + Mining Index + Electricity Index = 114.13 + 52.26 + 85.96 = 252.35
Now let us assume that the production in each of the sub heads of the manufacturing index grows in the next month say ‘y’
Index Calculation (4/4)
Description Weight (Wi) Production (Ri) Wi*RiBasic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.00 106 1484Machinery and Equipment other than Transport equipment 9.57 124 1186.68Food Products 9.08 210 1906.8Basic Metal and Alloy Industries 7.45 110 819.5Rubber, Plastic, Petroleum and Coal Products 5.73 98 561.54Cotton Textiles 5.52 290 1600.8Non-Metallic Mineral Products 4.40 54 237.6Transport Equipment and Parts 3.98 79 314.42Metal Products and Parts, except Machinery and Equipment 2.81 91 255.71Wood and Wood Products; Furniture and Fixtures 2.70 52 140.4Paper & Paper Products and Printing, Publishing & Allied Industries 2.65 67 177.55Other Manufacturing Industries 2.56 32 81.92Textile Products (including Wearing Apparel) 2.54 21 53.34Beverages, Tobacco and Related Products 2.38 69 164.22Wool, Silk and man-made fibre textiles 2.26 55 124.3Leather and Leather & Fur Products 1.14 68 77.52Jute and other vegetable fibre Textiles (except cotton) 0.59 91 53.69Sum 79.36 9239.99
• Thus the new manufacturing index value is 9239.99/79.36 = 116.43
• Corresponding value for the mining and electricity index is at 54.26 and 88.96 respectively
• Thus the value of IIP index is at the end of month ‘y’ stands at 116.43 + 54.26 + 88.96 = 259.65
• Thus the Index has grown by 2.89% in month ‘y’ compared to its value in month ‘x’
• This signifies a growth in the industrial production in India
Salient features of the series with base 1993-94 The latest series contains 543 items grouped into 287 item groups
The 287 items consists of 285 item groups of manufacturing sector and one each of mining and electricity sectors
The item basket identified captures about 80% of the output of the manufacturing sector
It has allocated individual weights to all the 18 items of earlier series from the small-scale industries (SSI) sector
This series has followed the National Industrial Classification NIC-1987
The quick estimates are being released with a time lag of six weeks from the reference month
These quick estimates for a given month are revised twice in the subsequent months
Problems of the new series
The performance of the unorganized manufacturing sector could not be adequately reflected due to non-availability of monthly production data in respect of sufficient number of items of this sector
Dropping of important new items adversely affected the representatives of the market basket and the market indices and hence, the source agencies could not furnish monthly time-series production data
The quality of monthly production data suffers from substantial non-response on the part of manufacturing units
The source agencies do not adopt any standard estimation techniques for estimation of non-responded production factories
Over or under estimation of item-wise production data since the frame of factories are not maintained by the source agencies
Index Structure
Manufacturing Sector
The Manufacturing sector has the maximum weightage in the IIP index It comprises of 478 items grouped into 285 item groups It is divided into two sub groups
Producer Goods: Producer Goods produce goods which are used as raw material in further production processes
Used Based Goods: Used Based Goods are goods produced for final consumption. It is further sub divided into- Basic Goods, Capital Goods, Intermediate Goods and
Consumer Goods. The consumer goods segment is again subdivided into the durable and the non
durable goods segment. In terms of weight the basic goods segment contributes the most followed by the
intermediate and consumer non durables
Mining & Electricity Sector
Mining contributes only 10.5% in the IIP index The electricity segment a meager 10.2% Electricity is divided to three sub-sectors
Hydro Thermal Nuclear
The above are all clubbed into 1 item-group Mining has numerous no. of items which are again all clubbed into 1 item group
Basic Goods Basic goods are goods 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
It contributes 35.5%, the highest in the manufacturing sector
It consists of 65 items Mineral Index Consists of 2 parts: mineral
fuels and metallic ores The top 5 companies dealing in the
different basic goods are stated in the next slide
They are sorted according to their market cap in a decreasing order barring some products
Cos. In electricity were sorted according to their production capacity
Top 5 Components of Basic Goods Index
M ineral Index, 29.50%
Electricity, 28.64%
Nitrogenous fertilizers,
5 .10%Cement all
kinds, 5.60%
Bars and rods, 5 .09%
Remaining Others, 26.23%
Top 5 companies in Basic Goods Segment (1/3)
Top 5 companies in Basic Goods Segment (2/3)
Top 5 companies in Basic Goods Segment (3/3)
Capital Goods
Raw materials used in the production of finished products, for e.g.: machines and tools
Capital good segment is probably the most important constituent in terms of its significance because it helps in future growth of other segments
It contributes 9.7% in the IIP which is the least consisting of 55 items
The top 5 companies dealing in the different capital goods are stated in the next slide
They are sorted according to their market cap in a decreasing order
Only 2 cos. were found in off-shore platforms category
No cos. were found in the laboratory instruments category
Top 5 Components of Capital Goods Index
Remaining Others, 64.85%
Diesel engines (IPP), 8.57%
Industrial machinery,
5.50%
Laboratory and scientific instruments,
4.48%
Complete tractors, 4.73%
Well/off shore platforms,
7.32%
Top 5 Companies in Capital Goods Segment (1/2)
Top 5 Companies in Capital Goods Segment (2/2)
Intermediate Goods
Goods that are used in the production of other goods for e.g.: lumber, sugar
It contributes 26.4% in the IIP which is the 3rd highest
It consists of 93 items The top 5 companies dealing in the
different intermediate goods are stated in next slide
They are sorted according to their market cap in a decreasing order
No cos. Were found in the particle board category
Top 5 Components of Intermediate Goods Index
Remaining Others, 60.64%
Cotton yarn (including SSI),
17.16%
Filament yarn, 6 .63%
Plywood commercial,
6.32%
Particle board, 3 .91%
PVC pipes & tubes, 5.73%
Top 5 Companies in Intermediate Goods Segment (1/2)
Top 5 Companies in Intermediate Goods Segment (2/2)
Consumer Durables
Goods that are able to extended for a period of time without deterioration and yields services or utility overtime for e.g.: cars appliances
It contributes 5.1% in the consumer goods which is least
It consists of 27 items The top 5 companies dealing in the
different durable goods are stated in next slide
They are sorted according to their market cap in a decreasing order barring some products
Cos. in passenger cars and t.v. receivers were sorted according to their production capacity
Cos. In telephone instruments were sorted according to their sales value
Top 5 components of Consumer Durables Index
Giant tyres, 7 .73%
Passenger cars, 8 .34%
T.V. receivers, 9 .75%
Scooter and mopeds, 11.42%
Telephone instruments,
12.17%
Remainig Others, 55.69%
Top 5 companies in Consumer Durable Goods Segment (1/2)
Top 5 companies in Consumer Durable Goods Segment (2/2)
Consumer Non-Durables
A good which is completely used up by the consumer for e.g.: food, clothing
It contributes 23.2% in the consumer goods which is the highest
It consists of 63 items The top 5 companies dealing in the
different non-durable goods are stated in next slide
They are sorted according to their market cap in a decreasing order barring some products
No cos. could be found in the 100% non-cotton cloth category
Only 2 cos. Were found in cotton hosiery which were sorted according to their sales value
Top 5 Components of Consumer Non-Durables Index
Paper & paper board (IPP),
5.95%
100% Non-cotton cloth,
5.18%
Wheat flour/maida,
9.23%
Sugar, 9.67%
Cotton hosiery cloth,
10.94%
Remainig Others, 59.48%
Top 5 companies in Consumer Non-Durable Goods Segment (1/2)
Top 5 companies in Consumer Non-Durable Goods Segment (2/2)
Performance Of IIP
The general IIP index (281.9) for May’09 reflects the positive effect of interest rate cuts, and government stimulus measures to revive demand and investment
Factory prod. is likely to increase further as FM Pranab Mukherjee projected high government spending in infrastructure and eased some of the tax burden on companies and consumers
Though electricity has increased but it had no impact on IIP due to its very low weigtage in it
Demand for Cons. durable goods increased because of stimulus packages such as duty reductions and sixth pay commission
Decrease in the capital goods and consumer non-durables bought a decrease in manufacturing due to their significant contribution
Basic and Intermediate Goods though account for a significant portion of IIP could not affect it because of its insignificant growth
The manufacturing sector declined overall together with the mining which led to a fall in the IIP
Y-o-Y Change
0%1%2%3%4%5%6%7%
IIP M anufacturing M ining Electricity
Chan
ge (%
)
Apr-M ay'08-'09 Apr-M ay'09-'10
Y-o-Y Change
-9%-6%-3%0%3%6%9%
12%15%18%
Basic Goods Capital Goods Interm Goods Cons. Durable Cons. Non-Durable
Chan
ge (%
)
Apr-M ay'08-'09 Apr-M ay'09-'10
Growth-rate change over-time
IIP was seen to perform very well during previous years but it slumped down in the year 2009 because of economic slowdown
Manufacturing was seen performing consistently since previous years but it started falling down and ultimately reached a negative in March’09
Mining and Electricity are both the sectors which have been doing well in previous years and are expected to continue the trend in the coming years
Y-o-Y Growth
-5
0
5
10
15
20
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Gro
wth
(%)
M anufacturing M ining Electricity
IIP (Y-o-Y Change)
-202468
1012141618
Jan-
05A
pr-0
5
Jul-
05O
ct-0
5
Jan-
06A
pr-0
6Ju
l-06
Oct
-06
Jan-
07A
pr-0
7
Jul-
07O
ct-0
7Ja
n-08
Apr
-08
Jul-
08O
ct-0
8
Jan-
09A
pr-0
9
Gro
wth
(%)
Growth-rate change in Consumer Goods segment
Capital Goods is a segment which had performed well in the years like 2005, 2006 and 2007 but has exhibited quite an irregular pattern of growth in 2008 and 2009
Intermediate goods had performed well in years 2006, 2007 but then started sliding down and till now could not regain its growth-level
Basic goods growth has slumped down in recent years though it performed well in previous years
Capital Goods (Y-o-Y Change)
-20
-10
0
10
20
30
40
50
60
Jan-
05A
pr-0
5
Jul-
05O
ct-0
5
Jan-
06A
pr-0
6
Jul-
06O
ct-0
6Ja
n-07
Apr
-07
Jul-
07O
ct-0
7
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09A
pr-0
9
Gro
wth
(%)
Y-o-Y Change
-15-10
-505
1015202530
Jan-
05
Apr
-05
Jul-
05
Oct
-05
Jan-
06A
pr-0
6Ju
l-06
Oct
-06
Jan-
07A
pr-0
7Ju
l-07
Oct
-07
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09
Apr
-09
Gro
wth
(%)
Basic Goods Intermediate Goods Consumer Goods
Consumer Durables and Non-Durables
In consumer goods there are two divisions-durables and non-durables
Durable goods had not performed well in years like 2007,2008 but had been doing really well since previous few months of 2009
Non-durable goods was more or less performing since previous years but has really gone down in the FY2009-10
Overall, the consumer goods sector has been performing consistently
Y-o-Y Change
-15-10
-505
1015202530
Jan-
05A
pr-0
5Ju
l-05
Oct
-05
Jan-
06
Apr
-06
Jul-
06O
ct-0
6Ja
n-07
Apr
-07
Jul-
07O
ct-0
7
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09A
pr-0
9
Gro
wth
(%)
Durable Goods Non-Durable Goods
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