Fixing The IIP: MoSPI Proposes New Norms To Make Industrial Data More Accurate
MoSPI has proposed replacing closed or inactive factories in the IIP sample with operational units to improve accuracy.
The planned overhaul, aligned with global standards, aims to capture real industrial activity as India shifts to a new base year.
The Ministry of Statistics and Programme Implementation (MoSPI) has proposed a significant revision to the methodology of the Index of Industrial Production (IIP) to enhance the accuracy of India’s industrial data.
Under the proposal, the ministry plans to replace non-operational factories in the IIP sample with active ones, aligning India’s data compilation process with global standards and improving the reliability of industrial output estimates.
Published monthly by MoSPI, the IIP tracks short-term changes in industrial production, serving as a vital indicator of economic activity across the mining, manufacturing, and electricity sectors, and remains one of India’s key measures of industrial performance.
Role of IIP in Measuring Industrial Performance
The IIP serves as a vital indicator of the Indian economy. It is one of the two high-frequency, monthly data releases published by the government, the other being the Consumer Price Index (CPI), which is used to calculate the headline retail inflation rate.
Policymakers closely monitor both IIP and CPI figures to assess the economy’s trajectory and underlying trends.
By measuring changes in industrial output over time, it helps track the growth or contraction of industrial activity.
This makes it a crucial tool for evaluating economic health and for offering insights that guide monetary policy decisions and industrial development strategies.
Currently, industrial data for the IIP is collected from 14 different agencies, covering 407 products across the mining, manufacturing, and electricity sectors. It is compiled and published by the Central Statistics Office (CSO), which functions under MoSPI.
Proposed Overhaul of the IIP
The MoSPI has released a discussion paper proposing a major revamp of the IIP methodology.
The ministry has suggested replacing closed factories or those that have altered their production lines with active and operational units in the existing industrial sample.
Currently, the IIP is compiled using 2011–12 as the base year, a framework adopted in 2017 to better reflect changes in industrial activity and to ensure consistency with the updated national accounts.
However, once selected, factories remain part of the sample even if they cease operations, resulting in data distortions.
According to the discussion paper, such closed factories account for 8.9 per cent of the IIP’s total weightage.
To address this issue, MoSPI proposes that defunct units be replaced with similar active factories producing comparable goods.
This change is expected to enhance data accuracy, prevent disruptions in trend analysis, and improve month-on-month comparability.
Under the proposed methodology, a factory would be substituted if it either reports zero production for three consecutive months or fails to submit production data for three continuous months.
Building a More Reliable IIP
The ministry is seeking public feedback on the proposed methodology for substituting factories in the compilation of the new IIP series. It is expected to be launched next year. Stakeholders can submit their suggestions by 25 November.
In the current IIP framework, the index is compiled using data from a fixed panel of factories that were selected in the base year to represent industrial activity across sectors.
However, as India’s industrial landscape evolves, some factories in this sample become non-operational or change their production profiles, making substitution necessary to ensure data accuracy and relevance.
As part of a larger statistical overhaul, the government also plans to shift the base year to 2022–23, aligning the IIP with other key datasets such as Gross Domestic Product (GDP) and the CPI.
This update aims to better capture the emergence of new industries and reflect structural changes in the economy.
To maintain continuity in the index, the substitution of factories would be adjusted using a 12-month “substitution factor,” reports Reuters.
The proposed methodology has been developed based on recommendations from the Technical Advisory Committee and incorporates inputs from the International Monetary Fund (IMF).
Recent data from IIP has shown steady industrial performance. Industrial output was recorded at 4 per cent in September 2025, driven largely by growth in the manufacturing sector.
The IIP growth rate remained the same for August, while July recorded 3.5 per cent compared to 1.5 per cent in June.
Among sectors, growth in September 2025 stood at –0.4 per cent for mining, 4.8 per cent for manufacturing, and 3.1 per cent for electricity.