India to revamp factory output calculations with renewable energy, utilities in focus – Firstpost

India is preparing a sweeping overhaul of the way it measures industrial activity, with the statistics ministry proposing major changes to the Index of Industrial Production (IIP) to better reflect the country’s evolving economic structure, including the growing role of renewable energy, utilities and emerging industries.

The proposed revamp, recommended by a technical advisory committee ahead of the release of the new IIP series next week, seeks to modernise one of the country’s most closely watched high-frequency economic indicators by expanding sector coverage and adopting more dynamic statistical methods.

Among the key changes under consideration is the separation of electricity generation into renewable and non-renewable categories, a move aimed at capturing India’s accelerating energy transition more accurately.

The revised framework will also expand the index beyond traditional industrial sectors by adding utilities such as gas supply, water supply, sewerage and waste management to the IIP basket.

The ministry has proposed revising the base year for the index to 2022-23 from the current 2011-12, reflecting significant structural changes in the economy over the past decade.

In another major methodological shift, the panel has recommended introducing a chain-linked framework alongside the existing fixed-base index. The new approach would allow sectoral weights to be updated annually, helping reduce distortions caused by outdated industrial weights and improving the index’s responsiveness to shifts in production patterns.

The linking of the old and new series will be carried out using the geometric mean method, with linking factors calculated at aggregated levels for both general and sectoral indices.

The proposed changes will also substantially widen the product basket tracked under the IIP. The number of item groups is set to rise to 463 from 407 currently, with the manufacturing basket alone seeing the addition of 120 new item groups while 64 older categories are dropped.

The revised mining index will include minor minerals and rare earth minerals, reflecting their increasing importance in infrastructure development, clean energy supply chains and high-technology manufacturing.

The panel has also recommended retaining “not elsewhere classified” items in the manufacturing basket to improve representation of new and emerging products that may not yet fit into standard industrial classifications.

To improve the quality and continuity of industrial data, the proposed framework includes a formal mechanism for replacing closed or outdated factories with newer production units, allowing the index to better capture changing production patterns across sectors.

The ministry has further proposed shifting from the Wholesale Price Index-based deflator to a Producer Price Index-based system for IIP calculations once the latter becomes available.

In a move that could eventually align India with global statistical practices more closely, the panel has also recommended creating separate industrial indices for the unincorporated sector and publishing seasonally adjusted IIP data in the future.