SDG 8: Decent Work and Economic Growth | SDG 17: Partnerships for the Goals
Institutions: Ministry of Statistics and Programme Implementation (MoSPI) | National Statistics Office (NSO)
The Ministry of Statistics and Programme Implementation (MoSPI) has released a Discussion Paper proposing a new methodology for the Substitution of Factories in the compilation of the Index of Industrial Production (IIP), aligning with the planned base year revision to 2022-23.
The Problem: The IIP relies on a fixed panel of factories, but over time, units close permanently or change their production lines, causing their weight to remain in the index (e.g., 8.9% in the current series). This necessitates increasing dependence on estimation, which compromises the continuity and representativeness of the index.
The Rationale: To maintain the continuity and representativeness of the IIP series, MoSPI’s Technical Advisory Committee (TAC) has favored adopting standard international practices that allow for the rule-based substitution of factories. It is adopted as a legitimate international statistical practice to accurately capture true production volumes, especially amid modernization and “creative destruction” (Industry 4.0).
Substitution Trigger: The process is initiated if a factory reports zero or no production for three consecutive months. This must be followed by source agency verification confirming permanent closure or a change in the line of production (temporary reasons, like maintenance, do not trigger substitution).
Selection and Adjustment:
The substitute factory must produce the same item or item group and have a similar Gross Value Added/Output (GVA/GVO) to the original factory.
A 12-month overlapping production period between the old and new factory is mandatory to calculate an Adjustment Factor (AF).
The new factory’s subsequent monthly production data is adjusted by the AF before being used in the Laspeyres index compilation.
This methodological reform is crucial for improving the quality, accuracy, and reliability of the IIP, a key macroeconomic indicator used for policy formulation, especially concerning industrial activity and sectoral performance. By adopting international statistical practices for substitution, MoSPI ensures the IIP accurately captures the rise of new production capacities and does not understate actual industrial growth, thereby improving the integrity and user trust in official economic data.
What is IIP→ The Index of Industrial Production (IIP) is a broad monthly indicator that tracks volume changes across mining, manufacturing, and electricity (covering 399 items, base year 2011–12). It is released by MoSPI’s National Statistical Office (NSO) and is the main short-term gauge of overall industrial performance.
What is the Laspeyres Index Formula? → The IIP is compiled using the Laspeyres index formula, a type of weighted average that incorporates three essential elements: base year weights (derived from Gross Value Added or Output), base year production data, and current monthly production data.
Follow the full news here: Discussion Paper 1.0: Substitution of Factories in the Compilation of the Index of Industrial Production (IIP) with Base Year 2022-23 - MoSPI