HPAS/Allied Mains 2022 Answer Writing Challenge Day 183: Model Answer

 Question: What is Index of Industrial Production (IIP)? Also explain its relevance in Indian Economy. (8 marks/ 120 words)

Answer:

It is released by the Ministry of Statistics and Programme Implementation (MoSPI). The Index of Industrial Production (IIP) maps the change in the volume of production in Indian industries. it chooses a basket of industrial products — ranging from the manufacturing sector to mining to energy, creates an index by giving different weight to each sector and then tracks the production every month. Finally, the index value is compared to the value it had in the same month last year to figure out the economy’s industrial health.

There are two ways in which IIP data can be viewed:

Sectoral performance. It helps in analysis of sectoral Performance. In this the whole industrial economy is divided into three sectors; the first is manufacturing with a weight of 77.6 per cent in the index, the second is mining with a weight of 14.4 per cent and third is electricity with a weight of 8 per cent.

Use-based classification. In this use-based classification, we can classify the different industrial products in following ways:

Primary goods, Capital goods, Intermediate goods, Infrastructure/Construction, consumer durables and nondurables.

The decline in the production of capital goods, which is the machinery used to produce other goods, shows that there is little desire/demand in the market to invest in existing or new capacity. The decline in consumer durables such a refrigerator or a car provides information that existing inventories need to produce  in less  amount because consumers continue to avoid buying these products.

Therefore, it helps in analysis of various Industrial Products. It also provides information about leading and lagging Sectors of Economy which further helps in framing the future economic policies.