What do the new numbers show?
The government last week introduced changes to two important indicators of the country’s economic situation — the Index of Industrial Production (IIP) and the Wholesale Price Index (WPI) . The new IIP figures show that industrial production grew at a pretty robust rate of 5% in 2016-17 as opposed to the anaemic growth of 0.45% shown by the old series. More recently, the new series shows that industrial activity grew at 2.7% in March, up from 1.9% in February. The old series had shown a contraction of 1.2% in February, in contrast. The new WPI figures show that wholesale inflation in 2016-17 was -1.1% as opposed to the much more uncomfortable 3.7% shown by the old numbers. Inflation in April stood at 3.85%, down drastically from 5.3% in March. The old figures had pegged March inflation at 5.7%.
What changes were made to the IIP?
Several changes made are technical and had to do with improving the granularity and representation of the data, but the most obvious change is the bringing forward of the base year from 2004-05 to 2011-12. As the government noted, a more recent base year is more in keeping with international best practices and also provides more representative and accurate data.
The new series has a total of 809 items, up from the 620 earlier. It is also more updated, having added 149 items of more recent use, such as steroids, hormonal preparations, and pre-fabricated concrete blocks, and deleted 124 other items such as calculators, and colour TV picture tubes.
It also changed the weightages of the different categories, increasing them for the manufacturing sector and marginally for the mining sector, while reducing them for the electricity sector.
What changes were made to the WPI?
Similar to the IIP, the WPI also saw its base year being moved forward to 2011-12 from 2004-05. This brings it more in line with the Consumer Price Index, which has a base year of 2012.
The new WPI series does not include indirect taxes in its calculation. This insulates the WPI from the effect of policy changes related to indirect taxes and thus makes it a more accurate measurement. It has also modified the weightages of its categories, placing a higher weightage to primary articles while reducing the weightages of fuel and power, and manufactured products.
The new series saw 173 new items added to the list and 135 items being dropped. will also come out with a composite food index, which combines the ‘food articles’ segment of the primary articles category and the ‘food products’ segment under the manufactured products category. This should provide a better understanding of the movement of food prices, especially when viewed together with the Consumer Price Index.
