The Ministry of Statistics and Programme Implementation (MoSPI) has proposed a major overhaul in the Index of Industrial Production (IIP) shifting from the current fixed-base Laspeyres framework to a modern chain-linked methodology that updates weights annually.
The proposal, detailed in Discussion Paper 2.0 released on Tuesday, aims to address growing concerns that the existing IIP has become outdated due to significant changes in the structure of the industry over the past 14 years.
The MoSPI is in the process of revising the base year of the IIP to 2022-23 from current 2011-12, along with the base years of gross domestic product and Consumer Price Index. According to the ministry, IIP data with 2022-23 base year is scheduled to release May 28.
What does the proposal say?
“Traditionally, the IIP has been compiled using a fixed-base Laspeyres framework, in which sectoral and industry weights remain unchanged until a base-year revision,” the paper reads.
With production shifts in response to demand, technology, and policy changes, some industries expand, while others decline or disappear, and entirely new industries or production lines within an industry emerge, the ministry said. “Fixed weights become progressively less relevant and thus affects the efficacy of the indices,” it said.
The chain-based method of compilation of IIP offers better accuracy by capturing these changes by allowing the increase and decrease in weights annually to correctly reflect a more recent production structure.
Sectoral weights for mining
Under the proposed chain-linked framework, sectoral weights for mining, manufacturing, and electricity would be revised every year using the latest available National Accounts Gross Value Added estimates, even when these are only provisional. Another data source under the chain-linked methodology would be Annual Survey of Industries, the discussion paper states.
The ministry has invited comments from stakeholders by January 25 on the proposed methodology.
The proposed shift would bring India in line with global best practices. Chain-linked volume indices are recommended by the Organisation for Economic Co-operation and Development (OECD), and Eurostat, and are already used by the United States, the United Kingdom, Australia, Canada, and members of European Union with variations in revision frequency depending on data availability at national level.