India is considering the possibility of adopting a chain-based measurement for the next series of the Index of Industrial Production (IIP), which is in-line with the practices at developed nations like the United Kingdom and Singapore, Moneycontrol has learnt.
“We are exploring the possibility of a chain-based index to update the industrial production measure every 1-1/2 to 2 years,” said a person familiar with the developments.
A chain-based measurement is used to track changes in economic data over time, such as GDP or factory output, by linking successive periods using previous period's reading as a base.
According to one source, the rationale is that with an exhaustive Annual Survey of Industries (ASI) now in place, the government can transition to a chain-based methodology that better captures the entry and exit of industrial units, as well as the inclusion of new items in production.
The current IIP series is more than a decade old, based on weightages from 2011-12. While a revision was initially scheduled every five years, the proposed update for 2017-18 did not materialise. The new series is expected to be launched in FY27, following the revision of other economic indicators such as the Consumer Price Index (CPI) and Gross Domestic Product (GDP).
The potential shift to a chain-based index also aligns with the government’s broader effort to improve accuracy of factory output data, which may incorporate alternative indicators to better reflect real-time industrial activity.
Chain vs Fixed Base
The debate around a chain-based versus a fixed-base index is not new. Previous working groups have favoured fixed weights for accuracy and to avoid frequent reclassification of industries, typically undertaken every five years.
A 2008 manual from the Statistics Ministry advocated for a fixed-base Laspeyres index with quinquennial (five-year) revisions. However, it acknowledged a key limitation, “One demerit of a fixed-base Laspeyres index is that it is prone to less frequent updating, and as the series gets longer, the data become less relevant. This calls for frequent base revision to capture the reality of the economic situation, particularly for fast-changing economies. But frequent base revision requires significant resources in terms of time, money, and manpower, which fast-changing and resource-poor developing countries can hardly afford.”
The Laspeyres index calculates value by using a fixed basket of items from a base period to measure how much the cost of that basket has changed in a subsequent period.
The working group responsible for the last IIP base revision (to 2011–12) ultimately decided against a chain-based approach.
If the ministry decides to retain a fixed-weight strategy, the upcoming IIP series will likely adopt 2023–24 as the new base year—already chosen for the CPI revision and other key statistics.
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