Govt plans major IIP overhaul to account for factory closures

“…in the current series the weight of the closed factory comes to about 8.9 per cent of the index. This situation poses challenges for maintaining the continuity of the IIP series. Continuing with factories that are no longer operational or no longer represent actual production leads to increased dependence on estimation or imputation methods. To address these challenges, substitution of factories has become necessary,” MoSPI’s discussion paper said. The ministry has invited feedback on the proposed change by November 25 so that the final method adopted to calculate the IIP is “well-informed, robust, and broadly supported”.

The IIP is a key indicator of the Indian economy and is one of the two monthly, or high-frequency data, published by the government, with the other being the Consumer Price Index (CPI), on whose basis the headline retail inflation number is calculated. Both the IIP and CPI numbers are keenly eyed by policymakers to understand the trajectory of the economy and the underlying developments.

Writing in a column for The Indian Express last month, MoSPI Secretary Saurabh Garg and Indian Institute of Management Kozhikode Professor Mridul Saggar – also chair of the Technical Advisory Committee for the review of the IIP – had mentioned the substitution of closed factories as one of the key improvements being planned. Internationally, substitution of factories is accepted practice.

Process of substitution

For a factory to be introduced into MoSPI’s IIP sample, it must make the same item as the factory that is being removed or an item that falls within the same group. Further, the gross value added or gross value of output of the new factory should be close to that of the one it is replacing, indicating that the two factories should be of similar size.

Moreover, the new factory should be operational for at least 12 months. This 12-month production data prior to the new factory’s introduction and the removal of the old factory is required.

“Until such overlapping data are obtained, ‘nil’ or imputed values may temporarily be used in the series. Consequently, depending on the timing, a few months of ‘nil’ production may appear before substitution is reflected,” the discussion paper said.

Broader review

The proposed change is part of a broader review of the IIP – which was last revised in 2017 – with MoSPI also in the process of updating the base year to 2022-23 from 2011-12. IIP data for a month is released on the 28th of the subsequent month and is currently compiled on the basis of production numbers received from 14 source agencies which cover 407 items or item groups from three sectors: mining, manufacturing, and electricity. The items are also split into six different use categories: primary goods, capital goods, infrastructure or construction goods, intermediate goods, consumer durables, and consumer non-durables.

The revised IIP numbers with 2022-23 as the base year are scheduled to be released starting May 2026. As per latest data, India’s industrial growth per the IIP was 4 per cent in September. In the first half of 2025-26, industrial output was 3 per cent higher compared to the first six months of 2024-25, lower than the 4.1 per cent growth recorded last year.