New IIP, WPI series introduced, show overall benign macronumbers

New IIP, WPI series introduced, show overall benign macronumbers

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(कायम)  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 (उज्जवल) 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 (अनुसार) 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 (बना हुआ) 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(विशाल) 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(अनार), jackfruit, and pear(नाशपाती) 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.