The National Statistics Office is undertaking a crucial revision of India's Index of Industrial Production, shifting the base year from 2011-12 to 2023-24. This move comes amid growing concerns about the accuracy of India's industrial output measurements and their ability to reflect true production trends.
The Core Problem with IIP Data
According to a recent discussion paper released by the NSO, the current IIP series suffers from significant shortcomings in capturing actual industrial production patterns. The primary issues identified include non-reporting by closed factories and lack of data when selected factories change their production lines. These problems affect a substantial portion of the sample, with closed factories alone accounting for approximately 8.9% of the index weight.
The NSO compiles the index using monthly production data obtained from a fixed set of factories, collected through 14 government 'source agencies'. The discussion paper suggests substituting factories that have closed or changed production lines with others manufacturing similar items to maintain data continuity.
Statistical Evidence Reveals Stark Discrepancies
When comparing the IIP with the Annual Survey of Industries' gross value added data from 2012-13 to 2023-24, concerning disparities emerge. Both series generally move in the same direction, but the IIP shows much lower annual growth rates and reduced fluctuations.
The average annual growth rates over this 11-year period reveal a dramatic difference: ASI recorded 5.9% growth while IIP showed only 3.3%. This indicates that the IIP substantially under-reports India's actual industrial growth, suggesting problems more significant than the 8.9% factory closure rate highlighted in the discussion paper.
Root Causes Beyond Statistical Methodology
The effectiveness of IIP as a leading economic indicator depends on three critical factors: appropriate item weights in the base year, proper sample selection, and timely, accurate production data. While the first two are statistical issues addressed through periodic revisions, the third depends entirely on administrative and legal frameworks.
Before India's 1991 economic reforms, factories had strong incentives to submit monthly production data to official agencies since this was required for obtaining licenses and capacity expansions. Post-liberalization, while the reporting mandate remained, compliance enforcement weakened significantly.
The Collection of Statistics Act of 2008 made data submission legally mandatory, but this provision is rarely invoked for IIP preparation. The law appears more effective for ASI, where NSO field staff physically visit factories to collect information.
Historical Context and Recommended Solutions
A 2014 working group report chaired by Soumitra Chaudhuri had already identified these systemic issues. The report noted that government organizations supplying IIP data face significant non-response problems in primary data collection, largely due to inadequate legislative control over production units.
The working group emphasized that strict enforcement of the Collection of Statistics Act, 2008 would represent a significant step toward improving data quality. Without addressing the fundamental issue of inadequate production data from factories, mere statistical adjustments provide limited solutions.
The current approach of seeking solutions primarily through methodological improvements resembles the proverbial case of searching for lost keys under a lamp post simply because the light is better there, rather than looking where they were actually lost.
As India revises its industrial production index, the focus must shift from statistical patchwork to strengthening field-level data collection mechanisms and ensuring better compliance with existing statistical laws.
