What does the new 2011-12 IIP series tell us about the Indian manufacturing sector?
Publication dateNov, 2017
DetailsNIPFP Working paper No. 215
AuthorsRadhika 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 find that growth in value based commodities contributes significantly 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 firms in the pharmaceuticals sector. Our findings 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.