Policy Update
Anushree Khare
Background
India’s Index of Industrial Production (IIP) is a monthly indicator from the National Statistical Office (NSO) that measures volume changes in physical production against a base year, acting as an early indicator of economic health.
For more than a decade India’s Index of Industrial Production (IIP) had been based on 2011-12.
Over this period there have been substantial changes in the nature of Indian industry:
- Renewable power has grown from being a small contributor to becoming a major component
- Mining has evolved beyond coal to include other minerals such as rare earth materials,
- Urban utility services including water supply, sewerage disposal and solid waste management have developed into an important part of gross value added for each sector.
However, none of these developments were captured by the previous IIP. The old IIP included only three sectors: mining, manufacturing and electricity and it did not cover renewable generation, gas supply or municipal services such as water and sewerage and waste management.
A fixed weight index constructed on a decade old picture of the economy will inevitably diverge from the economy it purports to describe, updating the baseline became essential to ensure statistical accuracy.
On June 24, 2026 the Ministry of Statistics & Programme Implementation (MoSPI) announced a revised version of the IIP with 2022-23 as the new base year. The revision reflects long-term structural shifts in the economy and it was well received.
It is worth noting that it arrives at about the same time as an energy price shock caused by issues in West Asia, an erratic and poorly distributed monsoon, and very preliminary signs of moderation in core industrial indicators.
Over the course of the next couple of quarters (as we look at IIP data), readers are going to have some additional work to do; they will need to differentiate “real” shifts in manufacturing output from those which were created by the introduction of the new basket, weights, and methods of measurement.
Functioning
The new series includes gas supply and water supply, sewage and waste management as separate categories, and splits electricity into renewable and non-renewable sources according to their respective weights in terms of the revenue generated in the base year.
The number of items in the basket increases from 839 items grouped into 407 categories to 1042 items grouped into 463 categories classified under NIC 2025 in place of NIC 2011.
As expected, given the increased breadth of sectors represented, weights move to reflect the composition of output in the new structure:
- Manufacturing decreases slightly from 77.6% to 76.06%,
- Mining and quarrying decline from 14.372% to 11.05%,
- Electricity and gas supply combined increase from about 8% to 10.87%,
- Water supply and waste management making a contribution equivalent to approximately 2.02% of total production that is not present in the original series.
Industrial production data in India has long been based upon an outdated system. In order to reflect recent changes in the Indian economy, the Ministry of Statistics and Programme Implementation (MoSPI) is revising the Index of Industrial Production (IIP) so that the period 2022-23 will be used as the base year instead of the prior 2011-12.
What Changed, and Why It Was Necessary
The new series expands the sectors covered by including gas supply, water supply, sewerage and waste management. Renewable and Non-Renewable Electricity is separated and weighted according to revenue shares in the base year.
As such, there are 203 more item baskets (from 839 to 1042), and they are grouped into 56 more groups (from 407 to 463) under NIC 2025.
Consequently, the weights are changing:
- Manufacturing has decreased slightly from 77.6% to 76.06%,
- Mining has also decreased slightly from 14.37% to 11.05%,
- Electricity and gas have increased significantly from approximately 8% to 10.87%.
Additionally, the number of groups being measured on a value basis (as opposed to simply measuring physical volume) has more than doubled from 109 to 234 using the updated Wholesale Price Index (WPI) or Producer Price Index (PPI) as price deflators.
These changes are significant because the original IIP did not allow for measuring renewable development in India or the increasing importance of rare earth minerals in mining output. In these regards, the revisions address a real omission.
Performance
The first publication for April 2026 under the new series indicates an increase of 4.9 percent year-on-year (y-o-y) in industrial production compared to last year. On top of this, manufacturing output increased by 6.2 percent.
Additionally, seventeen of twenty-three NIC 2-digit sectors registered positive growth. In terms of manufacturing, electrical equipment (at +19.2%) and other transport equipment (+18.9%), were the highest-growing segments. This suggests the strength lies in investment-related activities versus consumption-driven production.
Renewable power within the electric power index increased 18% under the newly introduced sub-index. No such comparison can be made in relation to the previous series, since prior to this revision, renewable energy could not be separated from non-renewable sources.
On the use-based classification, capital goods output expanded by 16.0%, while infrastructure and construction goods increased 7.1%. Both readings support continued capital spending.
The weakest link was mining and quarrying (-5.1%), as well as declining fuel minerals and non-metallic minerals.
As stated earlier, this decline follows the downward trend seen in the Eight Core Industries index, which slowed to a 0.5% year-on-year (YoY) growth in May 2026 from 1.8% in April 2026 due to negative contributions from coal, crude oil, natural gas and Petroleum refinery products.
Impact
The cost of closing the coverage gap is an actual break in the time series at a very inconvenient point in time.
The General Index was reported as having grown 6.7%, 6.4%, and 4.3% during 2023–24, 2024–25, and 2025–26 respectively using the new weights/basket. Using the old weights/basket, the same three fiscal years were reported to have had annual growth rates of 5.9%, 4.0%, and 4.1%.
They represent two different types of indexes based upon different weights and baskets.
As previously stated, the difference between the two sets of facts is greatest in those sectors that are experiencing the greatest impact from the present-day energy crisis, namely mining and electricity. Therefore, it becomes difficult to establish a clean baseline. Against which to compare recent decreases in core industries or a decrease in mining and quarrying (the first IIP report) as possible indicators of true economic weakness vs the expected statistical transitions caused by the rebasing.
As mentioned above, the effects are felt disproportionately across different sectors and this disparity merits closer attention.
- The manufacturing and capital-goods stories appear much stronger when told through the new weights and baskets.
- Conversely, mining’s story appears weaker as a result and as a result of changes to its content, specifically the inclusion of minor minerals and rare earth minerals.
Whether this reflects a genuine economic shift or simply a methodological artifact remains unclear from the headline figures alone.
Emerging Issues
There are two issues that remain open rather than fully resolved:
- The total number of categories (item-groups) within the Revised Index of Industrial Production (IIP), at 463, includes 234 categories measured by price sensitivity and 229 categories remain measured based upon quantity/unit count. Therefore, we should expect significant improvement in the true benefits associated with measuring items using prices in addition to unit counts as additional units are converted during subsequent revisions.
- In moving from WPI as the deflators for the previously valued items to the recently introduced Output PPI beginning in the May 2026 release MoSPI has followed its plan. Since the new Output PPI Series is so young, what can be viewed as the first positive indicator of whether or not India’s “true” industrial production is being captured through the revised IIP is likely to become much more pronounced as the series continues to mature and accumulate additional data points over time.
Way Forward
The revisions in this case are not a basis for questioning whether there should be revisions. The new IIP measures a much broader and more representative array of industries than did the original IIP; therefore, the original IIP was unable to measure both the ongoing shift toward low-carbon energy use and a substantial portion of India’s current mining production. Therefore, continuing to use the older IIP would mean measuring the economic activity of an economy that has changed significantly.
When comparing years of economic growth where data is available prior to and subsequent to June 2026 (when the data will be released), analysts, business leaders and policy makers need to exercise caution when analyzing trends regarding the rate of acceleration or deceleration of industrial growth in India based upon the IIP.
Analysts, business leaders and policymakers should allow a number of complete calendar quarters of post-revision data to be available and allow the Output PPI sufficient time to establish its own independent history of performance, before they draw definitive conclusions regarding the condition of Indian manufacturing/industry as measured solely by the IIP.
There is also a benefit to maintaining continuity in measurements. Necessary and ultimately beneficial for providing a better representation of Indian manufacturing/industry over time.
References
- Primary Source Document:
- Ministry of Statistics & Programme Implementation (MoSPI), Government of India. (2026). Monthly Economic Review — June 2026: Revisions and Structural Changes in the Index of Industrial Production (Base: 2022–23). New Delhi: Government of India.
- Data Citations by Section:
- Background & Introduction: Macroeconomic operating environment, energy supply-chain context, and baseline transition announcements (pp. 6, 14).
- Sectoral Structure & Weighting Framework: Table 1: “Sectoral Weights and Item Groups, Comparison of IIP Series” (p. 14).
- Structural Additions & Classification: National Industrial Classification (NIC) 2025 integration, new environmental/utility indicators, and sectoral line trends (p. 15).
- Current Performance Metrics: Debut growth data profiles for sectoral and use-based industrial classification (p. 15).
- Primary Sector Indicators: “Index of Eight Core Industries — Monthly YoY Growth (%)” tracking primary energy, mineral, and refinery output (p. 12).
- Methodological Revisions: Box 1: “Salient Features of the Revised IIP Series” detailing the transition of 234 out of 463 item groups to a deflated value-basis (p. 14).
- Deflator Frameworks: “Output PPI and WPI trend similarly” validation data and industrial deflator tracking baselines (p. 22).
About The Contributor
Anushree Khare is a Research & Editorial Intern at the Impact and Policy Research Institute (IMPRI). She holds a B. A. (Hons.) degree in Economics with Research. Her academic and professional interests lie in the domains of finance, quantitative research, data-driven policy analysis, and business strategy.
Acknowledgement
The author extends sincere gratitude to the IMPRI team for their guidance and support along with the reviewer Ms. Vaishnavi Nandedkar for her valuable feedback and insights.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organization
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