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What does the new 2011-12 IIP series tell us about the Indian manufacturing sector?

Radhika Pandey (), Amey Sapre () and Pramod Sinha ()
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Pramod Sinha: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: We discuss the changes in the new 2011-12 base year series of the Index of Industrial Production (IIP) to ask, whether the new series has improved our under-standing of the growth in the manufacturing sector. We develop a simple framework to separately estimate the contribution of value and volume based commodities in the growth of the manufacturing index. We find that growth in value based commodities contributes significantly in moving the index in either direction and that high growth in value based commodities coincides with periods of low inflation. Findings also show that movements in the IIP Index are increasingly influenced by the trends of WPI as growth in value based commodities may inflate or become subdued, given the fall or rise in the WPI index. As a case study of value based commodities, we compare the trends of IIP (Pharmaceuticals) and real Net Sales of firms in the pharmaceuticals sector. Our findings show that real Net Sales and IIP have contrasting trends. Such divergent trends between two measures of industrial activity raise crucial questions on the representativeness of the IIP.

Pages: 15
Date: 2017-11
Note: Working Paper 215, 2017
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