India’s IIP — A quick exploration

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I had the opportunity to do a quick analysis over the weekend on India’s Index of Industrial Production.

The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing. The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period. It is compiled and published monthly by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends. Wikipedia

RBI publishes a monthly dataset which provides a historical view of the IIP metrics, by sector. The dataset can be found here. I am analyzing this in May 2022 by which time data till February 2022 is published.

There is a general perception that India’s growth trajectory has shown significant signs of slowing down. The General Index has moved up from 99.3 in April 2012 to 132.1 in February 2022 (Base of 2011–12). This is a 33 point rise in about 10 years. This index had reached 133.2 in March 2017 which was an anomaly for that time-period. So the growth in about five years of about 1 point is truly worrying.

India’s IIP has operated in a narrow band between 2017 and 2022

The sharp decline in early part of 2020 is due to the Covid-19 pandemic.

The real story therefore is which of the industries is leading to this stagnation. I have analyzed this in three parts:

  1. Sector level change between 2012 and 2022: Industries which have been showing a negative change between 2012 and 2022 include beverages, paper products, tobacco and printing. Industries such as furniture manufacture, pharmaceutical and basic metals have shown the largest increases
IIP Change — 2012 to 2022

2. Sector level change between 2017 and 2022: This shows a different story. A lot more industries have moved into a negative territory. Worst performing ones apart from paper, leather and print, is also one called “other manufacturing” which may include a miscellany of other smaller industry groups. Food, basic metals, computers and furniture are still strong. Tobacco, which overall seemed to be in the negative territory has become positive.

IIP Change — 2017 to 2022

3. Sector level change between 2020(Jan) and 2022: The story now completely changes. Only three industry groups seemed to have done well, marginally from where they were back in January 2020 (which is metals, other manufacturing and furniture) and a majority of the other industry groups have lagged which pharma, leather and print having the largest declines

IIP Change 2020 to 2022

This deep a change in the pharma industry piqued my curiosity. A further analysis of just the pharma sector also tells where the impact is coming from. The drastic change seems to be a more recent phenomenon and hence could be transitory. The sector really bounced back to the pre-pandemic levels almost instantly. However, the last couple of months (Jan 2022 and Feb 2022) are the one’s that have created the most impact. Whether or not this is a lasting impact needs to be seen over the next few months.

I intend to dig into this a little more…for now, this is it. Comments welcome. You can also reach me on @sathviknishanth on twitter.