An autonomous research institute under the Ministry of Finance


What does the new 2011-12 IIP series tell us about the Indian manufacturing sector?

Publication date

Nov, 2017


NIPFP Working paper No. 215


Radhika Pandey, Amey Sapre and Pramod Sinha


We discuss the changes in the new 2011-12 base year series of the Index of Industrial Production (IIP) to ask, whether the new series has improved our understanding of the growth in the manufacturing sector. We develop a simple framework to separately estimate the contribution of value and volume based commodities in the growth of the manufacturing index. We fi nd that growth in value based commodities contributes signi ficantly in moving the index in either direction and that high growth in value based commodities coincides with periods of low inflation. Findings also show that movements in the IIP Index are increasingly influenced by the trends of WPI as growth in value based commodities may inflate or become subdued, given the fall or rise in the WPI index. As a case study of value based commodities, we compare the trends of IIP (Pharmaceuticals) and real Net Sales of fi rms in the pharmaceuticals sector. Our fi ndings show that real Net Sales and IIP have contrasting trends. Such divergent trends between two measures of industrial activity raise crucial questions on the representativeness of the IIP.

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