India is preparing a major revamp of its Index of Industrial Production (IIP), replacing closed factories from the sample set and updating the base year to 2022-23. The move aims to make industrial growth data more accurate and relevant to the country’s current economic landscape.
The IIP, one of India’s key monthly economic indicators, measures output across manufacturing, mining, and electricity sectors. The current series, based on 2011-12, no longer captures the structural changes of India’s economy over the past decade. Shifts such as the rise of new industries, the decline of legacy sectors, and the closure of older plants have made an overhaul both necessary and overdue.
Why the update was needed
A significant portion of factories currently included in the IIP are either closed or no longer producing the same goods. These inactive units distort production data, creating gaps between reported industrial growth and the real state of manufacturing activity. By replacing such factories, the government wants the index to better reflect actual output across sectors.
The overhaul also addresses the time lag between industrial change and data updates. Under the existing system, once a unit shuts down, it may remain in the index for years before being replaced. The new framework introduces a verification mechanism to identify non-operational factories faster and bring in active replacements that produce similar goods.
How the new system will work
Factories that show zero production or fail to submit reports for three consecutive months will be flagged for verification. Once confirmed as closed or inactive, they will be replaced by new factories producing comparable goods with similar output levels. To ensure data continuity, the new unit will be matched using 12 months of overlapping production data.
The base year shift to 2022-23 will also refresh the weighting pattern of sectors and items. Fast-growing industries like electronics, renewable energy equipment, and auto components are expected to gain higher weightage, while outdated categories may see a reduction. This alignment will make the index more relevant to India’s present industrial mix.
When the new index takes effect
The Ministry of Statistics and Programme Implementation (MoSPI) plans to release the updated IIP series by mid-2026. The rollout is part of a wider data modernisation drive that also includes revisions to GDP and consumer price indices. Together, these updates aim to provide policymakers and investors with a more accurate picture of the economy’s performance.
Once implemented, the revamped IIP will be a stronger indicator of manufacturing momentum. For example, industrial policy decisions, interest rate reviews, and investment outlooks often rely on the IIP’s growth trends. More accurate data means better decisions for monetary policy, fiscal planning, and industrial strategy.
Impact on businesses and markets
Businesses will benefit from improved data quality that aligns closer to actual production conditions. For investors and analysts, cleaner IIP readings will enhance forecasting models and sector analyses. The reform could also strengthen global confidence in India’s statistical reliability—an area where emerging economies often face scrutiny.
For manufacturing companies, the shift may highlight real-time demand changes in sub-sectors like consumer durables, electronics, and capital goods. Policymakers, meanwhile, will have a more responsive tool to gauge industrial health and design interventions that fit current realities rather than outdated factory patterns.
Implementation challenges
The reform will require extensive coordination between central and state agencies to identify and verify active factory units. Data collection will need to adapt to digital reporting systems for speed and accuracy. Ensuring smooth substitution without creating breaks in the time series will be another technical challenge.
Additionally, while the revision covers formal sector units, a large part of India’s output still comes from informal or small-scale enterprises. Incorporating these more effectively into future IIP frameworks will be key to building a truly representative index.
Takeaways
- India is updating the IIP base year from 2011-12 to 2022-23 to capture today’s industrial structure.
- Closed or inactive factories will be systematically replaced with active units to improve data accuracy.
- The new series will better represent emerging industries such as electronics and green manufacturing.
- Implementation challenges remain, particularly in ensuring data continuity and coverage of smaller firms.
FAQs
Q1: What is the purpose of changing the IIP base year?
To ensure the index reflects current industrial realities, including new sectors and technologies that have emerged over the past decade.
Q2: How will closed factories be replaced in the new system?
Inactive factories will be identified through production data checks and substituted with active units producing similar goods and having comparable output levels.
Q3: When will the new IIP series come into effect?
The rollout is expected around mid-2026, following validation and testing of the updated methodology.
Q4: What benefits will this bring to businesses and policymakers?
More accurate industrial data will improve investment decisions, policy planning, and the overall credibility of India’s economic reporting.
