Industrial production data: Plug gaps in law enforcement to fix it

All-round compliance with India's Collection of Statistics Act would help the IIP reflect production trends far more accurately

- R. NAGARAJ is a former professor, Indira Gandhi Institute of Development Research (IGIDR), Mumbai.

The National Statistics Office (NSO) is revising the base year of its Index of Industrial Production (IIP) to 2023-24 from 2011-12, which is the base-year for the ongoing series.

The NSO computes the index using monthly production data obtained from a fixed set of factories, collected by the government's 14 'source agencies.' India's current IIP series is unrepresentative of underlying production trends, as widely admitted. There are two reasons for this, contends a discussion paper recently released by the NSO: (i) non-reporting of data by factories that are closed; and (ii) lack of data when the selected factories change their production lines. These constitute a significant share of the selected factories. The discussion paper suggests ways to overcome these problems.

To quote the paper: "Presently, the compilation of the Index of Industrial Production (IIP) relies on a fixed panel of factories selected based on the base year to represent industrial activity across various sectors. Over time, certain factories in the sample may experience operational disruptions, such as: Permanent closure, Change in the production line .... Generally, the base year of the IIP is revised periodically; however, when there is a significant gap between revisions, such issues tend to arise .... e.g. over time, in the current series the weight of the closed factory comes to about 8.9% of the index. .... To address these challenges, substitution of factories has become necessary ... [by a set] that produces the same item/item group, ensuring continuity in the data series." (Page 2)