Government Proposes Overhaul of Industrial Growth Measurement Under New IIP Framework

The Ministry of Statistics and Programme Implementation (MoSPI) has proposed a major revision to the way India measures industrial growth under the Index of Industrial Production (IIP). The ministry plans to replace closed or non-reporting factories with new operational units producing the same or similar items, marking the most significant change to the index methodology since 2017.

Proposed Changes in IIP Methodology

According to the discussion paper released on Tuesday, factories reporting zero production or failing to submit data for three consecutive months will trigger a status review. If confirmed to have shut down permanently or shifted production to another category, the factory will be removed from the IIP sample.

It will then be replaced by a new factory that either produces the same item or falls under the same product group. To ensure comparability, the replacement factory’s gross value added or gross value of output should be close to that of the outgoing factory, indicating a similar scale of operation.

Additionally, the new factory must have at least 12 months of operational data before being included in the IIP sample to ensure reliability and consistency in production trends.

Significance of the IIP and Rationale for Revision

The IIP serves as a key monthly indicator of industrial performance, tracking short-term changes in the output of manufacturing, mining, and electricity sectors. It is one of the two high-frequency indicators published by the government, the other being the Consumer Price Index (CPI), which is used to calculate retail inflation.

Update to Base Year and Broader Review

As part of the overhaul, the MoSPI is also updating the base year of the IIP to 2022–23 from 2011–12, aligning the index with more recent economic structures and production patterns.

Currently, IIP data is compiled from production figures submitted by 14 source agencies, covering 407 items or item groups across three major sectors, mining, manufacturing, and electricity. These items are further classified into six use-based categories:

• Primary goods
• Capital goods
• Intermediate goods
• Infrastructure or construction goods
• Consumer durables
• Consumer non-durables

The updated IIP with the new base year is expected to be released starting May 2026.

Recent Industrial Growth Trends

According to the latest data, India’s industrial output grew 4% in September 2025, while growth for the first half of FY26 stood at 3%, lower than the 4.1% recorded during the same period of FY25.

The proposed revisions are expected to provide a more current and representative measure of industrial performance by aligning the dataset with the evolving industrial base and operational realities.

Read More: India's Economy Projected to Grow at 6.7-6.9% in FY26.

Conclusion

MoSPI’s proposal to replace defunct factories in the IIP sample with operational ones marks a significant step toward modernising India’s industrial data framework. Alongside the planned shift of the base year to 2022–23, the changes aim to ensure that the IIP better reflects contemporary production trends and supports more accurate policy assessment and economic planning.

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