Iip Index Of Industrial Production

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 Index which details out the growth of Industrial sectors in the
economy

 One of the prime indicators of the economic development and the
short-term economic analysis

 Measures trend in the behavior of industrial production over a
period of time with reference to a chosen base year

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  • Excellent. Very nice. I am a novice in economics and now i am in a position to understand what IIP is, when it is given in news papers and tvs. Thanks a lot to the author.
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Iip Index Of Industrial Production

  1. 1. Index of Industrial Production (IIP) Primer
  2. 2. What is IIP…?  Index which details out the growth of Industrial sectors in the economy  One of the prime indicators of the economic development and the short-term economic analysis  Measures trend in the behavior of industrial production over a period of time with reference to a chosen base year
  3. 3. Origin and History  The office of economic advisor ministry of commerce and industry made the first maiden attempt of compilation and release of IIP with base year 1937  To capture the changes in the industrial sector, the state series of IIP is revised from time to time by dropping obsolete items, and adding new items and also shifting the base year to a more recent one  The base year of the all-India IIP which commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81  The current base year is 1993-94  The general scope of the IIP as recommended by the United Nations Statistical Office (UNSO) is defined to include mining, manufacturing, electricity, construction and gas sectors  Due to constraints of data availability the present general IIP constitutes of mining, manufacturing (organised and unorganised) and electricity
  4. 4. Functions, Usage and Importance Functions  To prepare monthly as well as annual industrial production  To comprise main characteristics of Annual Survey of Industries (ASI) returns on district and group level Usage and Importance  Used by the planners, the state and the central government and at different levels for different policy decisions and other purposes  Used by the state government for preparation of state income estimates of manufacturing sector  Used by many countries in the annual and quarterly national accounts in many countries  The monthly IIP helps many countries to use it as a reference series in the compilation of cyclical indicators which helps to predict the future turning points in business cycle  Investors can use the IIP of various industries to examine the growth in the respective industry
  5. 5. Data Sources  The responsibility for compilation and publication of IIP was vested with Central Statistical Organisation after its inception in 1951  CSO receives monthly production data from as many as 14 source agencies, who collect data from the production units except for Railways, for which the consolidated data are supplied by the Railway Board  Department of Industrial Policy & Promotion (DIP&P) supplies data on as many as 213 out of 285 group of items in the manufacturing sector  The data on Electricity sector is furnished by the Central Electricity Authority  The index relating to Mining and Quarrying sector is supplied by the Indian Bureau of Mines, Nagpur  They are all summed up to arrive at the general IIP index
  6. 6. Index Calculation (1/4)  The index is a simple weighted arithmetic mean of production relatives calculated by using Laspeyre’s formula: I= Σ (Wi . Ri)/Σ Wi Where, I is the Index, Ri is the production relative of the ith item for the concerned month, Wi is the weight allotted to the ith item  It is compiled in stages, initially for items, then for sub-groups, groups and major groups, sectors and finally for all sectors combined  The index of monthly production covering 61 items supplied by Indian Bureau of Mines is dovetailed with indices of manufacturing and electricity sectors for compiling the general IIP
  7. 7. Index Calculation (2/4)  The IIP Index is composed of three broad heads namely Manufacturing, Mining and Electricity, with weight 79.36%, 10.2% and 10.5% respectively  Let us examine the detailed breakup of the manufacturing sector along with the indexed production of each of the sub heads Description Weight (Wi) Production (Ri) Wi*Ri Basic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.00 104 1456 Machinery and Equipment other than Transport equipment 9.57 115 1100.55 Food Products 9.08 203 1843.24 Basic Metal and Alloy Industries 7.45 116 864.2 Rubber, Plastic, Petroleum and Coal Products 5.73 100 573 Cotton Textiles 5.52 287 1584.24 Non-Metallic Mineral Products 4.40 52 228.8 Transport Equipment and Parts 3.98 77 306.46 Metal Products and Parts, except Machinery and Equipment 2.81 88 247.28 Wood and Wood Products; Furniture and Fixtures 2.70 50 135 Paper & Paper Products and Printing, Publishing & Allied Industries 2.65 65 172.25 Other Manufacturing Industries 2.56 31 79.36 Textile Products (including Wearing Apparel) 2.54 20 50.8 Beverages, Tobacco and Related Products 2.38 68 161.84 Wool, Silk and man-made fibre textiles 2.26 56 126.56 Leather and Leather & Fur Products 1.14 66 75.24 Jute and other vegetable fibre Textiles (except cotton) 0.59 89 52.51 Sum 79.36 9057.33
  8. 8. Index Calculation (3/4)  Thus the manufacturing Index stands at: I= Σ (Wi . Ri)/Σ Wi = 9057/79.36 = 114.13  Similarly the mining and the electricity index can be calculated and let us take their values as 52.26 and 85.96 respectively  Thus the value of IIP index for the month ‘x’ is equal to = Manufacturing Index + Mining Index + Electricity Index = 114.13 + 52.26 + 85.96 = 252.35  Now let us assume that the production in each of the sub heads of the manufacturing index grows in the next month say ‘y’
  9. 9. Index Calculation (4/4) Description Weight (Wi) • Thus the new manufacturing Production (Ri) Wi*Ri Basic Chemicals & Chemical Products index value is 9239.99/79.36 = (except products of Petroleum & Coal) 14.00 106 1484 116.43 Machinery and Equipment other than Transport equipment 9.57 124 1186.68 • Corresponding value for the Food Products 9.08 210 1906.8 mining and electricity index is Basic Metal and Alloy Industries 7.45 110 819.5 Rubber, Plastic, Petroleum and Coal at 54.26 and 88.96 respectively Products 5.73 98 561.54 Cotton Textiles 5.52 290 1600.8 • Thus the value of IIP index is Non-Metallic Mineral Products 4.40 54 237.6 at the end of month ‘y’ stands Transport Equipment and Parts 3.98 79 314.42 at 116.43 + 54.26 + 88.96 = Metal Products and Parts, except Machinery and Equipment 2.81 91 255.71 259.65 Wood and Wood Products; Furniture and • Thus the Index has grown by Fixtures 2.70 52 140.4 Paper & Paper Products and Printing, 2.89% in month ‘y’ compared Publishing & Allied Industries 2.65 67 177.55 to its value in month ‘x’ Other Manufacturing Industries 2.56 32 81.92 Textile Products (including Wearing • This signifies a growth in the Apparel) 2.54 21 53.34 industrial production in India Beverages, Tobacco and Related Products 2.38 69 164.22 Wool, Silk and man-made fibre textiles 2.26 55 124.3 Leather and Leather & Fur Products 1.14 68 77.52 Jute and other vegetable fibre Textiles (except cotton) 0.59 91 53.69 Sum 79.36 9239.99
  10. 10. Salient features of the series with base 1993-94  The latest series contains 543 items grouped into 287 item groups  The 287 items consists of 285 item groups of manufacturing sector and one each of mining and electricity sectors  The item basket identified captures about 80% of the output of the manufacturing sector  It has allocated individual weights to all the 18 items of earlier series from the small-scale industries (SSI) sector  This series has followed the National Industrial Classification NIC-1987  The quick estimates are being released with a time lag of six weeks from the reference month  These quick estimates for a given month are revised twice in the subsequent months
  11. 11. Problems of the new series  The performance of the unorganized manufacturing sector could not be adequately reflected due to non-availability of monthly production data in respect of sufficient number of items of this sector  Dropping of important new items adversely affected the representatives of the market basket and the market indices and hence, the source agencies could not furnish monthly time-series production data  The quality of monthly production data suffers from substantial non- response on the part of manufacturing units  The source agencies do not adopt any standard estimation techniques for estimation of non-responded production factories  Over or under estimation of item-wise production data since the frame of factories are not maintained by the source agencies
  12. 12. Index Structure
  13. 13. Manufacturing Sector  The Manufacturing sector has the maximum weightage in the IIP index  It comprises of 478 items grouped into 285 item groups  It is divided into two sub groups  Producer Goods: Producer Goods produce goods which are used as raw material in further production processes  Used Based Goods: Used Based Goods are goods produced for final consumption.  It is further sub divided into- Basic Goods, Capital Goods, Intermediate Goods and Consumer Goods.  The consumer goods segment is again subdivided into the durable and the non durable goods segment.  In terms of weight the basic goods segment contributes the most followed by the intermediate and consumer non durables
  14. 14. Mining & Electricity Sector  Mining contributes only 10.5% in the IIP index  The electricity segment a meager 10.2%  Electricity is divided to three sub-sectors  Hydro  Thermal  Nuclear  The above are all clubbed into 1 item-group  Mining has numerous no. of items which are again all clubbed into 1 item group
  15. 15. Basic Goods  Basic goods are goods wanted not for its own sake but for the goods derived from Top 5 Components of Basic Goods Index it, for examples, textiles which are wanted for the apparels made from them Rem aining Others, M ineral Index,  It contributes 35.5%, the highest in the 26.23% 29.50% manufacturing sector  It consists of 65 items Bars and rods, 5.09%  Mineral Index Consists of 2 parts: mineral fuels and metallic ores  The top 5 companies dealing in the different basic goods are stated in the N itrogenous fertilizers, Cement all Electricity, next slide 5.10% kinds, 5.60% 28.64%  They are sorted according to their market cap in a decreasing order barring some products  Cos. In electricity were sorted according to their production capacity
  16. 16. Top 5 companies in Basic Goods Segment (1/3)
  17. 17. Top 5 companies in Basic Goods Segment (2/3)
  18. 18. Top 5 companies in Basic Goods Segment (3/3)
  19. 19. Capital Goods  Raw materials used in the production of finished products, for e.g.: machines and Top 5 Components of Capital Goods Index tools Well/off shore  Capital good segment is probably the most Diesel engines (IPP), 8.57% platforms, important constituent in terms of its 7.32% significance because it helps in future growth Industrial of other segments machinery,  It contributes 9.7% in the IIP which is the 5.50% Complete least consisting of 55 items tractors,  The top 5 companies dealing in the different 4.73% capital goods are stated in the next slide Laboratory Remaining Others, and scientific  They are sorted according to their market 64.85% instruments, cap in a decreasing order 4.48%  Only 2 cos. were found in off-shore platforms category  No cos. were found in the laboratory instruments category
  20. 20. Top 5 Companies in Capital Goods Segment (1/2)
  21. 21. Top 5 Companies in Capital Goods Segment (2/2)
  22. 22. Intermediate Goods Top 5 Components of Intermediate Goods Index  Goods that are used in the production of other goods for e.g.: lumber, sugar Filam ent yarn, Cotton yarn (including SSI), 6.63%  It contributes 26.4% in the IIP which is 17.16% the 3rd highest  It consists of 93 items Plywood  The top 5 companies dealing in the com m ercial, 6.32% different intermediate goods are stated in next slide Rem aining  They are sorted according to their Others, PVC pipes & market cap in a decreasing order Particle board, 60.64% 3.91% tubes, 5.73%  No cos. Were found in the particle board category
  23. 23. Top 5 Companies in Intermediate Goods Segment (1/2)
  24. 24. Top 5 Companies in Intermediate Goods Segment (2/2)
  25. 25. Consumer Durables  Goods that are able to extended for a period of time without deterioration Top 5 components of Consumer Durables Index and yields services or utility overtime for e.g.: cars appliances Telephone  It contributes 5.1% in the consumer instrum ents, 12.17% Scooter and goods which is least m opeds, 11.42%  It consists of 27 items  The top 5 companies dealing in the T.V. receivers, different durable goods are stated in 9.75% next slide  They are sorted according to their Remainig Passenger cars, market cap in a decreasing order Others, Giant tyres, 7.73% 8.34% barring some products 55.69%  Cos. in passenger cars and t.v. receivers were sorted according to their production capacity  Cos. In telephone instruments were sorted according to their sales value
  26. 26. Top 5 companies in Consumer Durable Goods Segment (1/2)
  27. 27. Top 5 companies in Consumer Durable Goods Segment (2/2)
  28. 28. Consumer Non-Durables  A good which is completely used up Top 5 Components of Consumer Non-Durables Index by the consumer for e.g.: food, clothing Cotton  It contributes 23.2% in the consumer hosiery cloth, 10.94% Sugar, 9.67% goods which is the highest  It consists of 63 items Wheat  The top 5 companies dealing in the flour/maida, different non-durable goods are 9.23% stated in next slide  They are sorted according to their Remainig Paper & paper market cap in a decreasing order 100% Non- Others, cotton cloth, board (IPP), barring some products 5.95% 59.48% 5.18%  No cos. could be found in the 100% non-cotton cloth category  Only 2 cos. Were found in cotton hosiery which were sorted according to their sales value
  29. 29. Top 5 companies in Consumer Non-Durable Goods Segment (1/2)
  30. 30. Top 5 companies in Consumer Non-Durable Goods Segment (2/2)
  31. 31. Performance Of IIP Y-o-Y Change  The general IIP index (281.9) for May’09 reflects 7% the positive effect of interest rate cuts, and 6% government stimulus measures to revive 5% demand and investment Change (%) 4%  Factory prod. is likely to increase further as FM 3% Pranab Mukherjee projected high government 2% spending in infrastructure and eased some of 1% the tax burden on companies and consumers 0% IIP M anufacturing M ining Electricity  Though electricity has increased but it had no impact on IIP due to its very low weigtage in it Apr-M ay'08-'09 Apr-M ay'09-'10  Demand for Cons. durable goods increased because of stimulus packages such as duty Y-o-Y Change reductions and sixth pay commission 18% 15%  Decrease in the capital goods and consumer 12% non-durables bought a decrease in manufacturing due to their significant Change (%) 9% 6% 3% contribution 0%  Basic and Intermediate Goods though account -3% -6% for a significant portion of IIP could not affect it -9% because of its insignificant growth Basic Goods Capital Goods Interm Goods Cons. Durable Cons. N on-  The manufacturing sector declined overall Durable together with the mining which led Apr-M ay'08-'09 Apr-M ay'09-'10 to a fall in the IIP
  32. 32. Growth-rate change over-time IIP (Y-o-Y Change) Y-o-Y Growth 18 20 16 15 14 12 10 Growth (%) Growth (%) 10 8 5 6 4 0 2 0 -5 Jan-05 Sep-05 Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 M ay-05 M ay-06 M ay-07 M ay-08 M ay-09 -2 Jul-05 Jul-06 Jul-08 Jul-07 Oct-06 Jan-05 Apr-05 Jan-07 Oct-05 Apr-07 Jan-08 Oct-07 Apr-08 Oct-08 Jan-06 Apr-06 Jan-09 Apr-09 M anufacturing M ining Electricity  IIP was seen to perform very well during previous years but it slumped down in the year 2009 because of economic slowdown  Manufacturing was seen performing consistently since previous years but it started falling down and ultimately reached a negative in March’09  Mining and Electricity are both the sectors which have been doing well in previous years and are expected to continue the trend in the coming years
  33. 33. Growth-rate change in Consumer Goods segment Capital Goods (Y-o-Y Change) Y-o-Y Change 60 30 50 25 20 40 15 Growth (%) Growth (%) 30 10 20 5 10 0 -5 0 -10 -10 -15 Jul-05 Jul-06 Jul-07 Jul-08 Jan-05 Apr-05 Apr-06 Oct-07 Jan-08 Oct-08 Jan-09 -20 Oct-05 Jan-06 Oct-06 Jan-07 Apr-07 Apr-08 Apr-09 Jul-05 Jul-07 Jul-08 Jul-06 Jan-05 Apr-05 Oct-06 Jan-07 Oct-07 Jan-08 Oct-08 Jan-09 Apr-09 Oct-05 Jan-06 Apr-06 Apr-07 Apr-08 Basic Goods Intermediate Goods Consum er Goods  Capital Goods is a segment which had performed well in the years like 2005, 2006 and 2007 but has exhibited quite an irregular pattern of growth in 2008 and 2009  Intermediate goods had performed well in years 2006, 2007 but then started sliding down and till now could not regain its growth-level  Basic goods growth has slumped down in recent years though it performed well in previous years
  34. 34. Consumer Durables and Non-Durables  In consumer goods there are two divisions-durables and non-durables Y-o-Y Change 30  Durable goods had not performed 25 20 well in years like 2007,2008 but had 15 been doing really well since previous Growth (%) 10 5 0 few months of 2009 -5 -10  Non-durable goods was more or less -15 performing since previous years but Jul-05 Jul-07 Jul-08 Jul-06 Jan-05 Apr-05 Jan-06 Jan-07 Oct-07 Jan-08 Apr-08 Oct-05 Apr-06 Oct-06 Apr-07 Oct-08 Jan-09 Apr-09 has really gone down in the Durable Goods N on-Durable Goods FY2009-10  Overall, the consumer goods sector has been performing consistently
  35. 35. Disclaimer: This document is for private circulation only. Neither the information nor any opinion expressed constitutes an offer or any invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities (“related investment”). Kredent Brokerage Services Limited (KBSL) or any of its Associates or employees does not accept any liability whatsoever direct or indirect that may arise from the use of the information herein. KBSL and its may trade for their own accounts as market maker, block positioner, specialist and/or arbitrageur in any security of this Issuer(s) or in related investments, and may be on the opposite side of public orders. KBSL, its affiliates, directors, officers, employees and employee benefit programmers may have a long or short position in any securities of this Issuer(s) or in related investments. No matter contained herein may be reproduced without prior consent of KBSL. While this report has been prepared on the basis of published/other publicly available information considered reliable, we are unable to accept any liability for the accuracy of its contents.

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