The Ministry of Statistics and Programme Implementation (MoSPI) has initiated the process of revising the base year for the Index of Industrial Production (IIP). As part of this exercise, the ministry is reviewing current compilation techniques, evaluating newer data sources, and considering methodological upgrades through extensive interactions with researchers, analysts, industry participants, and other stakeholders.

Why the current fixed-base method is limited

Traditionally, the IIP is compiled using a fixed-base Laspeyres index in which the sectoral and industry weights remain constant until the next base revision. However, India’s industrial ecosystem is dynamic. Production patterns continuously shift due to technological innovation, market demand, globalization, and government policy changes.

As a result, some industries expand rapidly, some lose relevance, while entirely new sectors and product lines emerge. When weights remain unchanged for long periods, the index gradually becomes less reflective of the present-day structure of industrial output.

Moving toward a chain-based IIP

To address these limitations, MoSPI is considering a chain-linked approach for calculating IIP. Under this system, weights are updated more frequently — typically every year — allowing the index to better mirror ongoing structural changes in the economy.

A chain-based framework:

• captures expansion and contraction in industries in a more timely manner
• aligns weights with current production realities
• improves accuracy and responsiveness
• enhances policy relevance by providing more up-to-date signals

Discussion paper released for feedback

To encourage informed debate, MoSPI has published “Discussion Paper 2.0: Adoption of Chain-Based Index of Industrial Production (IIP)”. The document explains the proposed methodology for shifting to a chain-linked index and outlines the analytical advantages of such a transition. Stakeholder comments and expert viewpoints will help shape the final framework.

Summary

MoSPI has begun revising the base year for the Index of Industrial Production and is evaluating a shift from the existing fixed-base methodology to a chain-linked framework. The chain-based IIP would allow regular updating of industry weights, making the index more reflective of India’s evolving industrial structure. A detailed discussion paper outlining the proposed approach has been released to invite feedback from experts and stakeholders.

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