Measuring change: New IIP broadens scope of coverage, but needs better data

The Ministry of Statistics and Programme Implementation (Mospi) is in the process of revising important indicators used to gauge the state of the economy. It has thus far provided a new series for national accounts and the consumer price index. It is scheduled to release another one for the index of industrial production (IIP) next week. These are important changes because new indices reflect the underlying changes in the economy. The IIP base year is being revised from 2011-12 to 2022-23. Industrial activity in India has changed significantly over the past decade with the expansion of renewable energy, electronics manufacturing, digital technologies, and critical minerals. According to Mospi, the new series includes rare-earth minerals, minor minerals, gas and water supply, sewerage & waste management, and drops items such as kerosene, sewing machines, and fluorescent tubes. The number of item groups has increased from 407 to 463. In manufacturing alone, the count has risen from 405 to 455, with 64 item groups removed and 120 added. This broader basket will make the index more relevant for policymakers, businesses and investors.

 

The technical advisory committee (TAC) formed for the exercise also attempted to modernise industrial measurement by incorporating methodological improvements and international best practices. Advanced economies increasingly use dynamic industrial measurement systems, which regularly update weightings and production patterns. The TAC report refers to recommendations by the Organisation for Economic Co-operation and Development and the International Recommendations for the Index of Industrial Production, 2010, of the United Nations Statistics Division, which support chain-linked indices rather than rigid fixed-base systems.

 

Such systems reduce substitution bias and prevent industrial weightings from becoming outdated, especially where old industries decline and new industries emerge quickly. Yet the overhaul also exposes some gaps. India’s statistical system still relies on delayed surveys, uneven reporting from states, outdated administrative systems, and weak digital data systems. A large part of manufacturing also remains outside the organised sector, where production is small-scale, informal, and difficult to track. Although the TAC has made a forward-looking recommendation to develop indices for the unincorporated sector, it remains to be seen how it’s worked upon. Further, activities like the repair & installation of machinery and equipment remain difficult to track because they are predominantly service-oriented and require developing reliable metrics, which at this current juncture are unavailable.

 

Similarly, the inclusion of rare-earth minerals reflects India’s ambitions in emerging technologies, electronics, and clean energy. Although India holds the world’s third-largest reserves of rare-earth minerals, domestic processing capacity remains limited. Price deflators play an important role in converting value-based production data into volume-based output estimates, and in this regard, the absence of a producer price index (PPI) remains a significant gap. The revised IIP series, therefore, can be viewed as a transition towards a more modern industrial-measurement system. The immediate priority must be to improve data quality, strengthen digital reporting systems, refine deflators, and develop better methods to capture informal and fragmented sectors. With sustained institutional reform and methodological improvement, the IIP can evolve into a more credible and reliable indicator of India’s industrial and economic transformation.