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The country's industrial growth in volume terms has been refusing to perk up, even as the new data on the gross domestic product (GDP) showed a much higher rise in industrial expansion.
Moody's Analytics, a research arm of the Moody's group, has set growth in the index of industrial production (IIP), which represents volume expansion, at 2 per cent in January, only slightly higher than 1.7 per cent in December. The January data for the IIP is slated to be released on Thursday.
Barring April, May and November, the IIP expansion remained below 3 per cent in every other month. The IIP contracted by 4.2 per cent and rose just 0.9 per cent in July and 0.5 per cent in August.
While industrial growth in the new GDP numbers, with a revised definition and base, is officially pegged at 6.1 per cent for 2014-15, it was just 2.1 per cent in April-December in terms of the IIP.
Except for the first quarter when the IIP expanded 4.5 per cent and industrial growth in GDP stood at 4.6 per cent, the two remaining quarters showed a huge difference. In the second quarter, the IIP rose 1.3 per cent, while industrial expansion was 5.5 per cent. Similarly, the IIP rose 0.5 per cent in the third quarter, and industrial expansion was 6.5 per cent.
For the fourth quarter, advance estimates project industrial growth in GDP to be 8.9 per cent. If the Moody's Analytics projection of 2 per cent comes true, it would be almost impossible to have growth in the IIP close to what industrial production showed in GDP data.
For comparing the two data sets, we have taken mining and quarrying, electricity and related sectors and manufacturing in the GDP into account.
Moody's Analytics said, "Industrial output growth has slowed on account of slowing mining activity and weaker export demand.
Revised GDP figures showed a much higher pace of economic growth in 2014 than previously thought. Industrial production data will be more closely scrutinised as a result, in a bid to reconcile the seeming discrepancies."
The IIP methodology should be revised to bring it in line with the new GDP series, Moody's Analytics said. In the new GDP series, the base year is revised from 2004-05 to 2011-12 and economic growth is defined to include indirect taxes (net of subsidies).
Though the base year of the IIP will also be revised to 2011-12 some time this year, it may still show discrepancies with the GDP data. This is so because the IIP now constitutes around 25 per cent of industrial data in the GDP, while the rest comes from corporate results announced by listed entities and some data provided by the Reserve Bank of India, according to an official from the ministry of statistics and programme implementation (MoSPI).
Earlier, GDP data used to mainly come from the IIP in the first estimate, while the annual survey of industries used to figure in the data after years of gap.
Even for 2013-14, the annual survey of industries data could reflect only in 2016. A frequently asked questions (FAQs) section put up by the MoSPI said, "It may be noted that the IIP is a Pure Volume Index. Value-added data is available from accounts and the ASI."
The 2011-12 series captures value addition information based on corporate filing right from the first year and comprehensively from second year as against the 2004-05 series, where this information was being captured only in the third year, the MoSPI said.
The new GDP data will also alter composition of various sectors. For 2013-14, both the old and new series are available.
That year, the share of manufacturing rose from 12.9 per cent in the old base to 18 per cent in the new series. This was because certain services that go into after product moves out of factory are included in the manufacturing.
There are two approaches, establishment and enterprises, used in calculating manufacturing production. Till now, only the establishment approach was used, which means calculating production plant by plant.
On the other hand, in the enterprises approach the activities at headquarters are taken into account. For instance, after an item is produced, various marketing and sales promotion efforts go on at the headquarters level.
In the new GDP data, the establishment approach is used for small companies as they have a few plants or sometimes a single plant. But, for large corporates, the enterprises approach is used.
