The Index of Industrial Production (IIP) (Base: 1993-94) has recently displayed relatively high month-to-month fluctuations, confusing economists and analysts. Thus, the YoY growth dipped from a high of 11.3 per cent in April to 8.3 per cent in July that prompted the conclusion that the economy was slowing down. But then August data showed a "recovery" to 10.7 per cent, which was followed by a "relapse" to a still lower 6.8 per cent in September, forcing economists to again revise downward their opinion of economic performance. Now, October data released by CSO shows that industry has done quite well during the month, with IIP showing the current fiscal's highest growth rate of 11.8 per cent. This again would change the perception of the direction of industrial performance. Filtered for volatility attributable partly to base month effects, the first seven months of the current fiscal ended with 9.7 per cent increase, implying a moderate slowdown from 10.1 per cent in the corresponding period of 2006-07.
The investment story of the economy seems to have remained unscathed with capital goods industry speeding from 15.7 per cent to 20.1 per cent during April-October 2007. In this, base metals and alloys expanded 17.3 per cent, machinery and equipment other than transport equipment 12.4 per cent, and non-metallic mineral products that include cement 9.4 per cent. Consumer goods, however, experienced a downturn and within this consumer durables had a YoY drop (though industry associations contest this).
Incidentally, IIP is an abstract number, the magnitude of which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time. Strictly speaking, the IIP is a short-term indicator of industrial growth till the detailed results from Annual Survey of Industries (ASI) become available. A major grouse against the present IIP with its over 10-year old base of 1993-94 is that it has ceased to mirror current industrial profile.
CSO has initiated actions for revision of base year of IIP to 1998-99. There is little dissemination of information on the shape of the new base IIP series though its launch is understood to be only five-six months away. Still, we suggest that the items selected and their weights should reflect the current industry profile. More importantly, production data collection should be more broad-based so that it reflects industry trend and from this point of view the significance of collecting agency in collating right data in well-defined standard formats in time is very important so that there are less drastic "first" and "second/final" revisions of the relevant data. Lastly, with modern MIS and high tech computers, the gap between IIP and detailed ASI should be reduced to one year (from over two years now).

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