Context: IIP grows 3% as electricity, manufacturing output surge

Source: The Hindu

According to data from the Ministry of Commerce and Industry, the manufacturing sector and electricity output soared in March 2025, resulting in a 3% increase in the Index of Industrial output.

Due to higher power consumption during the summer, electricity production grew 2.7% points to 6.3% in the reviewed month. In March 2025, the manufacturing sector’s output increased at a faster rate of 3% compared to 2.7% the month before.

Growth in the mining and quarrying sector decreased to 0.4% in March from 1.6% in February. At 6.6% and 8.8%, respectively, consumer durables and construction saw the biggest growth increases. In February, these industries expanded by 3.7% and 6.8%, respectively.

At 3.1% and 2.3%, respectively, primary sectors and intermediate goods were the other sectors whose output increased more quickly than it did in February.

The output of consumer non-durables shrank a greater 4.7% in the month under review, continuing to decline for the second quarter. March had a sluggish 2.4% growth in capital goods output, down from 8.1% the previous month.

IIP growth was the smallest in four years, coming in at 4% year over year.

Model Question:

“What is the Index of Industrial Production (IIP)? Discuss its significance for the Indian economy and critically examine the limitations of IIP as an indicator of industrial growth.”

Model Answer:

The Index of Industrial Production (IIP) is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to a chosen base year. It is compiled and released monthly by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation.

The current IIP series is based on the 2011–12 base year, and it comprises three sectors:

Manufacturing (77.63%)

Mining (14.37%)

Electricity (7.99%)

Significance of IIP:

1. Economic Monitoring: Provides real-time data on the industrial sector, helping policymakers monitor economic health.
2. Policy Formulation: Aids in RBI’s monetary policy decisions by tracking inflationary trends.
3. Investment Decisions: Useful for private and institutional investors to assess industrial performance.
4. Planning and Forecasting: Forms the basis for GDP estimation in the short term and sectoral planning.

Limitations of IIP:

1. Outdated Basket: Product basket may not reflect recent technological and industrial developments.
2. Volatility: Monthly data can be erratic and prone to sharp fluctuations.
3. Data Collection Lag: Delays and revisions reduce reliability.
4. Limited Scope: Does not include the informal sector, which constitutes a significant portion of India’s industry.
5. Lack of Value Addition Insight: IIP measures volume, not value, ignoring efficiency or productivity improvements.

While the IIP is a crucial barometer for industrial performance, its limitations necessitate complementing it with other indicators like PMI, Core Industries Index, and GDP data for a more holistic view. Periodic updates and better integration with digital data systems can enhance its relevance in modern policy-making.