SDG 8: Decent Work and Economic Growth | SDG 9: Industry, Innovation and Infrastructure
Ministry of Statistics and Programme Implementation (MoSPI) | National Statistical Office
The Ministry of Statistics and Programme Implementation (MoSPI) has released Discussion Paper 2.0, proposing a fundamental shift in the compilation of the Index of Industrial Production (IIP) from a fixed-base to a chain-based index. Traditionally, India has utilized the Laspeyres framework with fixed weights that remain unchanged for years, often leading to weight obsolescence and “substitution bias” as industrial structures evolve. The proposed chain-based method aims to improve accuracy by updating the item basket and weights annually, ensuring the index reflects rapid technological transformations and shifts in market demand.
The proposed methodology involves calculating annual link indices—where each year’s production is compared to the preceding year—which are then “chained” together to form a long-term series. To maintain data quality, MoSPI recommends the Annual Overlap method for chaining, which provides smoother transitions than the one-quarter overlap approach. This transition is designed to capture the emergence of new industries and the decline of obsolete ones in real-time, providing policymakers with a more precise tool for macroeconomic monitoring.
What is ‘Weight Obsolescence’ in the context of IIP? It refers to a phenomenon where the fixed weights assigned to different industrial sectors during a base year (e.g., 2011-12) become irrelevant over time. As new technologies emerge and consumer preferences shift, old industries may shrink while new ones grow. In a fixed-base system, the index continues to give high importance to declining sectors and ignores new high-growth areas, leading to an inaccurate representation of the country’s actual industrial health.
Policy Relevance
Transitioning to a chain-linked IIP is critical for aligning India’s statistical infrastructure with international best practices (such as System of National Accounts 2008 (2008 SNA)) and ensuring data-driven governance.
Strategic Impact for India:
Capture of Structural Shifts: Enables the immediate inclusion of high-growth sectors like semiconductors or EV components without waiting for decadal base-year revisions.
Reduced Growth Distortions: Minimizes the “step-effect” and sudden jumps in data often seen during traditional base-year transitions, providing a more reliable trend for monetary policy.
Enhanced Global Comparability: Brings Indian industrial statistics in line with advanced economies like the US, UK, and EU, which already utilize chain-linking for their production indices.
Informed Budgetary Planning: Provides the Ministry of Finance and RBI with a more accurate “real-time” gauge of industrial value-added, aiding in more precise GDP forecasting.
Follow the full update here: Discussion Paper 2.0: Adoption of Chain-Based Index of Industrial Production (IIP)