The new-look index of
industrial production (IIP) and the wholesale price index (WPI), which were
declared on Friday and have been built on the new series of data, paint a
healthier picture of the Indian economy in 2016-17 than the old series did.
However, the impact of demonetisation still persisted on industrial production,
particularly manufacturing, which declined in March over February. Besides,
investments are yet to pick up. The base year for the indices in the new series has shifted to
2011-12, against the earlier 2004-05.
The series has been
revised after eight years. “Our attempt will be to revise the series more
frequently now. The technical review committee has been established to ensure
the series remains relevant by identifying new items. It will meet at least
once a year,” Chief Statistician T C A Anant told reporters.
Showing a brighter side,
the IIP data on new series showed that in none of the
months in 2016-17 did the IIP contract, while it declined in six months —
April, July, August, October, December, and February — in the old series.
The new series of the IIP shows higher growth rates in most months in the
period April 2012 to March 2017 than was the case when the computation was done
in accordance with the old series. This is attributable to the base shift,
increase in the number of factories in the panel for the reporting data and
excluding closed ones, and including new items and keeping out old ones.
Calculated in accordance
with the new series, while the IIP rose 2.7 per cent in March, against 1.9 per cent
in February, the WPI inflation rate declined to a four-month low of
3.85 per cent in April, against 5.29 per cent in the previous month. The
consumer price index (CPI), which had moved to the new series earlier, declined
to a record 2.99 per cent in April, against 3.81 per cent in the previous
month.
“The improvement in IIP growth in March 2017 relative to February 2017
on a year-on-year basis, resonates with the trends available from several other
early indicators, spanning mining, electricity, manufacturing, trade, transport
and financing,” said Aditi Nayar, principal economist, Icra.
Gross domestic product
(GDP) is also expected to undergo revision, based on the new WPI and IIP numbers. The WPI is used as a deflator for manufacturing to
compute constant GDP. The government will release GDP figures for 2016-17 at
the end of this month. Advance Estimates had shown the economy grew 7.1 per
cent in the year.
“The importance of the WPI has gone up enormously under the new national
account series. GDP will have to be re-computed from the base year onwards, based on the new WPI series. GDP constant price series from 2011-12
can change quite dramatically now,” said Pronab Sen, former chief
statistician.
The downward revision in
the WPI numbers may have an impact on real GDP numbers,
to the extent of the downward revision of GDP deflator. However, it might be a
little early to say whether the impact could be in the upward direction, said
Soumya Kanti Ghosh, chief economic advisor, SBI.
The IIP data of November 2016 did not reflect the impact
of demonetization, as the effect came with a lag. However, it was visible in
the four months from December to March, as the IIP did not return to the level seen in November,
when it had grown by 5.7 per cent. The same trend was found even in the old
series, by which IIP growth in November was 5.6 per cent, the highest
in the post-demonetisation period.
“There seems to be some
visible effect of demonetisation in the new IIP series. Usually the last quarter tends to show
the highest growth,” said Sen.
The manufacturing growth
rate declined by 1.2 per cent in March, against 1.4 per cent in the previous
month. This is the lowest growth in the three-month period, but was higher than
the 0.9 per cent in December, which was the worst affected due to
demonetisation.
Mining saw stupendous
growth of 9.7 per cent in March, against 4.6 per cent in February, while electricity
generation rose 6.2 per cent, against 1.2 per cent over this period.
Cumulatively, the IIP grew five per cent in 2016-17, against 3.4 per
cent in the previous year. But the old series shows growth to be dismal. It
would have been 0.7 per cent in 2016-17, against 2.5 per cent in the previous
year.
In the new series of the
IIP, there are 809 items, against 620 in the old one. As many as 149 items such
as steroids, cement clinkers, prefabricated concrete blocks, and refined palm
oil have been added in the new series, while 124 items such as calculators,
colour TV picture tubes, and gutka have been
deleted.
The weight of
manufacturing in the new IIP has increased to 77.6 per cent from 75.5 per
cent, while that of mining reduced to 14.1 per cent from 14.3 per cent, and
electricity to 7.9 per cent from 10.3 per cent.
The revised series is
expected to narrow the wide divergence between the manufacturing sector under
the IIP and that under GDP, with the series becoming
more representative now.
“The huge gap between IIP growth rates and that under both the annual
survey of industries (ASI) and GDP will be somewhat narrowed due to the
addition of new factories and products, but will not be completely eliminated.
This is because the IIP continues to be a volume measure, while both the
ASI and GDP are value-added concepts,” Anant said. Besides, GDP takes data from
the enterprise approach and the ASI from the establishment approach.
The government has also
attempted to address the issue of volatility in the IIP on account of capital goods by distributing the
production process over the months during the course of manufacturing. However,
that may not fully address the issue. “There is an intrinsic volatility in the
output data, which will continue to be maintained in the IIP, as entities can
run into issues; there can be local factors, labour trouble, climatic factors,
resulting in very sharp changes in production,” said Anant.
In the new series of the
WPI, the number of items covered has increased from 676 to 697. In all, 199 new
items have been added and 146 old items have been dropped.
Among the primary
articles, new vegetables and fruit such as radish, carrot, cucumber, bitter
gourd, mosambi (sweet lime), pomegranate, jackfruit, and pear have been added.
In the mineral group, items like copper concentrate, lead concentrate and
garnet have been added whereas copper ore, gypsum, kaolin, dolomite, and
magnesite have been taken out. Natural gas has been added as a new item.
Among manufacturing
items, around 173 new items such as conveyer belt, rubber tread, steel cables,
tissue paper, and wooden splint have been added, while 135 items like khandsari
(unrefined raw white sugar), poppadom, and video CD players have been dropped.
The weight of
manufactured items has decreased to 64.2 per cent in the WPI in the new series from 64.9 per cent in old
series, and fuel and power to 13.1 per cent from 14.9 per cent, while those of
primary items rose to 22.6 per cent from 20.1 per cent.
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