Driven by base effect-led uptick in production of natural gas, steel, cement and electricity – the output of eight core sectors grew by 6.8% in March 2021.
GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)
Dimensions of the Article:
- What is Index of Industrial Production (IIP)?
- What is Base-effect?
What is Index of Industrial Production (IIP)?
- The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
- It is compiled and published MONTHLY by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
- Base Year for IIP is 2011-2012.
- IIP is a composite indicator that measures the growth rate of industry groups classified under:
- Broad sectors, namely, Mining, Manufacturing, and Electricity.
- Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods
The Eight Core industries of IIP are:
- Crude Oil
- Natural Gas
- Refinery Products
Significance of IIP:
- IIP is the only measure on the physical volume of production.
- It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc., for policy-making purposes.
- IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates.
What is Base-effect?
- The base effect is the effect that choosing a different reference point for a comparison between two data points can have on the result of the comparison. This often involves the use of some kind of ratio or index value between two points in a time-series data set, but can also apply to cross-sectional or other types of data.
- Using a different reference or base for comparison can lead to a large variation in ratio or percentage comparisons between data points – hence, base effect can lead to distortion in comparisons and deceptive results, or, if well understood and accounted for, can be used to improve our understanding of data and the underlying processes that generate them.
In the current example of 8 core industries output data: Production of natural gas, steel, cement and electricity jumped 12.3%, 23%, 32.5% and 21.6% in March 2021, as against (-) 15.1%, (-) 21.9%, (-) 25.1% and (-) 8.2% in March 2020, respectively (low base effect).
-Source: The Hindu