IIP (Industrial Production)

• Work speeded up on new index
• The government is accelerating the rollout of a new Index of Industrial Production, or IIP, after several agencies voiced concern over the high volatility of the current index. The IIP measures factory output growth. A government-appointed panel, chaired by Planning Commission member Saumitra Chaudhury and comprising economic advisers of various ministries, is examining the new index, which has been prepared by the Central Statistical Organisation (CSO).
• The move to set up a new index followed reservations expressed by several organisations, including the Reserve Bank of India, over the current index. These agencies had said that the index, with a 1993-94 base year, has become outdated. They said its product basket was not representative enough as it included several items that are no longer in much use, such as typewriters. The current series of IIP was also
  criticized for its extreme volatility.
• The ministry of statistics then directed the CSO to create a new index with a base year of 2004-05. This index included a new basket of 500 products. But the plan to introduce the new index was delayed after its trial runs showed it to be no less volatile than the current IIP.
• The government then appointed an expert panel to review the basket of products, reassign weights to reflect current reality, especially in segments such as capital goods and consumer non-durables.
• People close to the development say the revised index will include laptops, mobile phones, LCDs and a number of chemicals that were not manufactured at the time of the last base revision in 1993-94. Weightage to the items would be given in accordance to their share in the gross domestic product.  
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• currrent IIP data
• On 11th April, the Central Statistical Organisation (CSO) of the government released the industrial output data-as measured by the Index of Industrial Production (IIP)-for the month of February 2010. The data showed that industrial growth in February was slower at 3.6% compared to 15.1% in the month a year ago. The government attributed the low numbers to contraction in the manufacturing and mining sectors.
  
  The CSO also revised the IIP for January to 3.95% from the earlier estimate of 3.7%. The decline in fact started in November 2010 (2.7%) and continued through December (2.53%) and thereafter.
  
  The last major jump in industrial production happened in October last year when it expanded by 11.29%. With the country's industrial growth falling from 11.29% in October 2010 to a meagre 3.6% in February this year, this is a sure indicator of a slowdown.
  
  Consequently, overall, the IIP for April 2010-February 2011 period recorded a slippage to 7.8% from 10% in the previous corresponding period.
  
  However, another industrial growth barometer, the HSBC Markit Purchase Managers' Index (PMI)-a private survey of purchasing executives in over 500 manufacturing companies- pegged manufacturing growth at 57.9 for March 2011, unchanged from the previous month. The survey added that despite inflationary pressures in March, the country's manufacturing output has remained intact.
  
  Commenting on the India Manufacturing PMI survey, Leif Eskesen, chief economist for India and ASEAN at HSBC said, "The momentum in India's manufacturing sector held up well in March, suggesting that growth is not an immediate concern. Output growth kept up the pace and the inflow of new orders accelerated, holding promise of a continued strong momentum in output in the months ahead."
  
  While the manufacturing PMI for February was 57.9, it was 56.8 in January, 56.7 in December 2010 and 58.4 in November. A reading above 50 indicates expansion while that below 50 indicates contraction. As the PMI has remained in the positive zone since last November, it indicates that manufacturing growth is still strong.
  
  Looking at the PMI numbers for March 2011, analysts opine that the India's manufacturing sector has benefitted from the initiatives provided by the government in the aftermath of the global slowdown in 2008 and 2009.
  
  On the other hand, optimism expressed by chief economic advisor Kaushik Basu saying that IIP numbers for April will rebound after remaining low in March, looks a bit far-fetched. Besides, comments by Planning Commission deputy chairman Montek Singh Ahluwalia that more than the anticipated growth in the farm sector will make up for the shortfall in industrial output raises many questions.
  
  The IIP numbers are based on broad-based data from government sources, which is often revised later, while PMI presents a more accurate view of the country's manufacturing sector as it is based on a survey of purchasing executives from the manufacturing sector.
  
  Looking at other economic indicators, India's headline inflation for February rose marginally to 8.31% from 8.23% in the previous month. With the headline inflation staying above the 8% mark, the government has been forced to revise the comfort level and has now stated that inflation for March would be around 8.5% (inflation figures for March will be released later this week).
  
  Besides, in a bid to tame rising prices, the Reserve Bank of India (RBI) in its mid-quarter review of the monetary policy last month raised short-term lending and borrowing rates by 25 basis points. This was the eighth time that the central bank raised the rates since March last year.
  
  While the RBI is doing its best to curb liquidity in the system, commerce and industry minister Anand Sharma has voiced concern saying, "I hope that credit will continue to be made available freely, liberally and on good terms to the industry, because investments must go in for capacity building and for additional capacity creation, which the industry is committed to do."