The new series data, released on Friday, gave a much better picture of the country’s industrial performance than assumed earlier, with the index of industrial production rising at a much faster pace of 5% in 2016-17, against just 0.7% reported under the old series with 2004-05 as base year.
While the government maintains that the two sets of growth rate are not strictly comparable due to so many changes— in base year, methodology, composition and items — the much-improved growth figure will likely raise some eyebrows.
DIPP secretary Ramesh Abhishek said some of the factories that had stopped functioning and were still a part of the old series data source have been removed in the new series with 2011-12 base year. This has also aided the growth rate in the new series.
Since the base year for some of the crucial indicators of the economy — GDP, IIP, CPI and WPI — are now going to be the same, the comparisons among these gauges would be easier. A narrowing of the wide IIP-GDP differential witnessed in recent years is another feature.
While volatility in the IIP data could still continue to an extent, the government has moved in to address frequent fluctuations in the notoriously volatile capital goods segment. Production data for this segment will now be captured in terms of “work in progress” to better represent the growth in monthly terms and avoid reporting bulk data only after the completion of production, as was the practice until now. “To that extent volatility will be addressed,” chief statistician TCA Anant said. However, since volatility in the IIP is linked to structural issues in some cases, it won’t be completely erased.
Under the old series, capital goods segment witnessed sharp volatility in recent years — from 21.3% growth in August 2015 to a 25.3% contraction in the beginning of last fiscal to 10.9% growth in January 2017.
The government will gauge renewable sources of power generation while estimating growth in electricity in the IIP. This inclusion has been done from April 2014, as credible data for earlier period were not available. Also, the use-based classification has been reframed by replacing basic goods with primary goods and introducing the “infrastructure/construction goods” category.
Also, the new series data will somewhat bridge the divergence of IIP with the impressive growth in GVA in the manufacturing sector in recent quarters, some difference will still persist. This is mainly due to the fact that the IIP is only a volume indicator, while the GVA captures value addition as well.
While manufacturing GVA is forecast to have grown 7.7% in 2016-17, the latest IIP data show the production in the sector has actually gone up by 4.9%. Manufacturing growth under the new series was still much better than a 0.3% contraction in the first 11 months of the last fiscal.
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Also, replacing the old basket of goods with a contemporary one will lend more credibility to the growth data of such indicators. The change in the IIP base year is usually undertaken to reflect the changes in the structure and composition of the industry over time because of consumption pattern, technological changes and economic reforms.