India revises macroeconomic Indices to capture structural changes in economy and improve the quality and representativeness

India has revised its key macroeconomic indicators to capture structural changes in the economy and improve the quality and representativeness of the indices. The base year of the all-India Index of Industrial Production (IIP) & Wholesale Price Index (WPI) has been revised from 2004-05  to 2011-12 to align it with Gross Domestic Product (GDP), Consumer Price Index (CPI); to reflect the changes in the industrial sector. With this release an institutional mechanism has been established for facilitating dynamic revision of the item list of products and the panel of factories, through a Technical Review Committee, chaired by Secretary, Ministry of Statistics and Programme Implementation (MS&PI).

Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mining, electricity and manufacturing. The all India 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 that in a chosen base period. It is compiled and published monthly by the Central Statistical Organization (CSO) six weeks after the reference month ends.

Wholesale Price Index (WPI) is the price of representative basket of wholesale goods i.e. goods that are sold in bulk and traded between organizations instead of consumers. WPI is used as an important measure of inflation in India. Fiscal and monetary policy changes are greatly influenced by changes in WPI. Inflation rate is the difference between WPI calculated at the beginning and the end of a year. The percentage increase in WPI over a year gives the rate of inflation for that year.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. GDP is one of the primary indicators used to gauge the health of a country’s economy.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.

Salient features of the new series with base 2011-12 are as under:

• These changes to the indices align it with other measures and bring them in line with global practices.
• Base year has been revised from 2004-05 to 2011-12
• IIP in the new series will continue to consist of three sectors viz. Mining, Manufacturing and Electricity, as in the existing series.
• Due to the increasing significance of the electricity generation from renewable sources, it has been decided to include the same in the electricity generation figures for compilation of IIP in the new series.
• National Industrial Classification 2008 will be followed in the new series for the purpose of classification of products as per industries.
• Use-Based Classification has been revised to reflect the industrial segments and production more accurately and to map the products more accurately as per their use in the industries. The new use based classification includes Primary Goods, Intermediate Goods, Infrastructure/Construction Goods, Capital Goods, Consumer Durable Goods and Consumer Non Durable Goods including Mobile phones.
• At the broad level, the new series has a total of 809 items occurring in the manufacturing sector in the item basket (405 item groups), where 149 new items like Steroids and hormonal preparations, Cement clinkers, Medical/ surgical accessories, Pre-fabricated concrete blocks, refined Palm Oil have been added and 124 items such as Biaxially Oriented Polypropylene (BOPP) Films, Calculators, Colour TV picture tubes, Gutka have been deleted from the 2004-05 series which had 620 items (397 item groups) in the manufacturing sector.
• The basket of goods for WPI has been changed to include 199 new items, doing away with 146 and taking the total to 697.
• Coverage of the new series of IIP is limited to the Organized Sector only.
• The new series show higher growth rates in most months in the period April 2012 to March 2017, as compared to the existing series which is attributable to:

 (i) Shifting of base to a more recent period

 (ii) Increase in number of factories in panel for reporting data & exclusion of closed ones

(iii) Inclusion of new items and exclusion of old ones.

• In order to bring the index closer to the producer price index, in line with international practices, the revised system has excluded indirect tax from wholesale price index calculation.

The new series show higher growth rates in most months in the period April 2012 to March 2017, as compared to the existing series. The growth in inflation as measured by the wholesale price index in 2016-17 was 1.7% as per the new base of 2011-12 against 3.7% with the old base of 2004-05. Similarly, IIP showed a rise of 5% in the year 2016-17 with the updated base compared with 0.7% based on the old one