Industrial classification set for a makeover, in line with new-age economy

An overhaul of the National Industrial Classification framework seeks to include multiple new activities that better capture a changing economy, data from which is expected to help policymaking

Earlier this month, the Ministry of Statistics and Programme Implementation (Mospi) put out a note inviting feedback from stakeholders on the draft National Industrial Classification (NIC) framework. Being revised for the first time since 2008, it aims to capture structural and technological changes in the Indian economy, including new industries and services that need inclusion and representation in official statistics. 

The last time there was such a long hiatus in revising the NIC was between 1970 and 1987. In recent years, the pace of socioeconomic change has quickened and enterprises across sectors have undergone broad shifts. As a result, the revision exercise now underway is of a far greater magnitude than previous ones. 

The first such classification of economic activity in the country came in 1962, with updates and revisions in 1970, 1987, 1998, 2004, and 2008. 

The importance of NIC 

The NIC is basically a set of several five-digit codes — a standardised numerical system developed by the Mospi — to classify and categorise various economic sectors, whose output is then added to arrive at the country’s gross domestic product (GDP). It also serves as a foundational tool for organising data related to industries and businesses. For example, in agriculture, forestry and fishing, code 01116 pertains to growing groundnut seeds for producing groundnut oil, while 01117 is for sunflower seeds, also for making oil. 

These codes are also instrumental in capturing economic activity through statistical surveys such as the Annual Survey of Industries, informal sector surveys, the Economic Census, and the Ministry of Corporate Affairs (MCA) database. They further support economic research, registration processes, and policy formulation by both central and state government agencies, as well as private sector stakeholders. 

What’s the process? 

The draft NIC-2025 has been formulated under the aegis of an expert committee composed of eminent academicians, economists, industry associations and experts from various domains, an official told Business Standard. “Extensive consultations were also done with stakeholders, including central ministries/departments, industry experts, and other relevant organisations,” said the official, adding, “We need more feedback on this exercise, and hence have put out the draft for the public.” 

P C Mohanan, former acting chairman of the National Statistical Commission, noted that the revision will capture new industries and the changing nature of economic activity in India. Several new-age services are likely to be included in the updated framework. 

“Access to granular data strengthens policymaking by offering a clearer view of economic activity, thereby supporting the design of precise policy interventions,” he said. For instance, crop-specific data on items like tomato, cauliflower, brinjal and garlic equip governments to tackle inflation more effectively than aggregate figures on vegetable production, he explained. 

Ashish Kumar, distinguished fellow at Pahle India Foundation, a not-for-profit thinktank, and former director of the UN Statistical Institute for Asia and the Pacific, said these refinements would enable a more accurate measurement of the contributions of various sectors and sub-sectors of the economy for better tracking, coverage, and effective policymaking. 

“The new classification will be useful for micro, small and medium enterprises (MSMEs) since it will help enumerators to assign specific activity for them and to register them on the Udyam portal and avail of government benefits,” said Kumar, who is also former director general, Central Statistics Office. The MSME ministry’s Udyam portal is aimed at streamlining the registration process for businesses. 

What’s in, what’s out 

Up to the four-digit level, the proposed overhaul of the NIC codes is in line with the recently updated International Standard Industrial Classification of All Economic Activities (ISIC Revision 5) developed by the United Nations Statistics Division, and aimed at facilitating better international and interregional comparability of economic data, besides supporting more robust economic analysis and policy-making. 

“The sub-class level (five digits) is being developed in the new framework to accommodate national-level requirements, with special emphasis on the renewable energy sector, fintech services, intermediation activities, Ayush health system, e-commerce, digital economy, etc,” the official cited above said. 

As a result, the number of sub-classes in the draft NIC-2025 is expected to have gone up to around 1,900 from 1,304 in NIC-2008. 

A Business Standard review of the draft document reveals that the updated NIC framework seeks to capture a broad spectrum of emerging and previously underrepresented activities. These include services such as nail salons, online and offline dating, weight-loss salons, temporary tattoo art as well as agricultural and allied activities like equine rearing and the cultivation of specialised crops such as opium, ashwagandha, and isabgol. 

Alcohol manufacturing, earlier grouped broadly, is now set to be split into sub-categories like vodka, rum, brandy, gin, and whisky. 

The new framework also adds EV chargers, rooftop solar equipment, and online food delivery, while phasing out radios, CDs, and video tapes in favour of webcams, streaming gear, and OTT platforms. Transistors now feature only as semiconductor components. 

Similarly, the revised framework brings online tutorials under academic services and separates professional exam coaching into two categories — for entrance tests such as IIT-JEE, and employment exams including UPSC and banks. 

The computer programming activities category, which earlier had only three classifications, including writing software programs and web-page designing, now clearly outlines new activities. These include artificial intelligence (AI) and machine learning application development, as well as designing cybersecurity and anti-virus programs. 

Concerns remain 

Kumar cautioned that the current exercise must ensure the earlier codes and the new ones are synchronised, so that analysing longer term trends isn’t a challenge. 

“The new codes shouldn’t rock the boat too much and must have a seamless flow,” he said. “Moreover, the new series should include all the economic activities on the horizon like gig and platform work, digital technology, AI, thus anticipating changes in the nature of work for the next decade or so,” he pointed out. 

Meanwhile, Rajeswari Sengupta, associate professor, Indira Gandhi Institute of Development Research, said that while a revised code may help in sub-sectoral analysis of economic activities and the rectification of misclassification of a number of 

companies, the issue of shell companies that exist in the MCA database, and which affect GDP estimation, may still persist. 

“Servicification of manufacturing is a concern as a lot of firms categorised as manufacturing are actually engaged in services, which the new code may help in resolving since it may reclassify them and allot proper codes,” she said. “However, when we estimate GDP using the MCA database, a lot of firms are shell companies — possibly a quarter of them. Even if we revise the NIC and include new activities, this problem is still going to persist as these firms will continue to be included in GDP estimation, thus giving us a distorted picture.” 

These are challenges that will need to be addressed if NIC-2025 is to provide a faithful measurement through sectors that shape the economy. 

Newly drafted  Some additions to draft NIC

• Growing of citrus fruits: Tangerines, mandarins, and clementines (keeno) 
• Growing of drug & pharmaceutical crops: Isabgol, ashwagandha, opiums
• Courier activities: Home delivery services, including parcels and food, via private or public transport
• Financial services: Digital currency wallet providers, validation and mining for crypto assets deemed financial assets 
• Operation of online platforms that allow passengers to book a ride and/or order food
• OTT platform streaming services for films, TV shows
• Personal services: Laundry collection & delivery, carpet & rug shampooing, drapery & curtain cleaning, day spa, sauna, steam bath activities

Note: This is not an exhaustive list