Context:
The Ministry of Statistics and Programme Implementation recently released the Quick Estimates of the Index of Industrial Production (IIP) for January 2024, revealing a growth of 3.8 percent.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- About the Index of Industrial Production (IIP)
- About Laspeyre’s formula
About the Index of Industrial Production (IIP):
- Definition: The Index of Industrial Production (IIP) is a key indicator used to measure trends in industrial production over time, providing insights into the performance of the industrial sector.
- Purpose: It serves as a crucial short-term indicator for assessing industrial growth until more detailed industrial surveys become available. The IIP helps policymakers, economists, and analysts understand the direction and magnitude of changes in industrial production.
- Calculation: The IIP is computed and published monthly by the Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation. It is calculated using Laspeyre’s formula, which involves taking a weighted arithmetic mean of production relatives. Production figures are deflated using Wholesale Price Indices to remove the effect of price changes.
- Base Year: The base year, typically assigned a value of 100, serves as the reference point for comparing industrial production. In India, the current base year for the IIP series is 2011-12. For example, if the current IIP reads as 116, it indicates a 16% growth compared to the base year.
About Laspeyre’s formula:
- Origin: The formula was proposed by German economist Étienne Laspeyres (1834–1913) for measuring current prices or quantities relative to those of a selected base period.
- Calculation: A Laspeyres price index is computed by comparing the total cost of purchasing a specified group of commodities at current prices to the cost of the same group at base-period prices, multiplied by 100. The base-period index number is set at 100, with periods having higher price levels reflected in index numbers greater than 100.
-Source: The Hindu
