Introduction to Index of Industrial Production (IIP)
IIP, as an index, tracks and reflects changes in the volume of production in key Indian industries.
Different industries are attributed distinct weights and the resultant index is accepted to be indicative of the economy’s industrial health.
Key sectors covered by the index include manufacturing, mining, electricity, primary goods, intermediate goods, consumer durables & non-durables, infrastructure and capital goods.
The index is considered important as an economic indicator helping capital market and economic participants in decision making.
Update: IIP Reading – Jan 2021
IIP declined by 1.6% in Jan’21 vs an increase of similar in Dec’20 and 2.2% in Jan’20
Analyst Commentary
After staging a swift recovery till October 2020, the next three months have been rather volatile as the economy seems to be consolidating with diverse undercurrents in different segments pulling the economy in different directions. Here is an element-wise breakup of performance:
The decline in consumer goods, read with emphasis on the steeper decline in consumer durables, reflect a demand-side pause as the lockdown-induced pent-up demand and recent festivity-led demand begins to lose steam. The slippage in capital goods production could be read as reflective of cuts in private capital expenditure and blocking of meaningful public expenditure.
IIP numbers highlight the nascent and fragile stage of recovery that the Indian economy was in.
We continue to keep an eye on efficient implementation of public policies which can be expected to bolster the economy at large. Resurgence of health risks in fragmented pockets of the nation, disrupted supply-side economics and overtly cautious retail consumption continue to be prominent risks to India’s full-blown economic recovery.
However, it is to be noted that, IIP metrics in isolation is inadequate to form a holistic view of the state of economy. IIP metrics should be considered as indicative from a directional standpoint while taking into consideration the statistical limitations and lag nature of the metric.
Click Here to read MoSPI’s original press release on ‘Quick estimates of index of industrial production and use-based index for the month of January, 2021’
