India's industrial growth explained

**SPEAKER_1** (0:00)
Hello folks, you're tuned in Finshots Daily, and in today's episode, we give you an oversimplified breakdown of the index of industrial production, i.e. IIP, and what to make of it.
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If someone casually asked you how India's economy performed in FI26, the first thing that will probably come to mind is GDP or the total value of goods and services India produced that year and whether that number went up or down. But GDP isn't the only way to understand the economy. In fact, most economists see GDP as a lagging indicator. Simply put, it tells you what has already happened because it relies on past data and is released only after a quarter has ended. So if you wanted a sense of where the economy might be headed before the bigger numbers arrive, it would make more sense to look at a leading indicator or something that offers clues about future economic trends. A couple of days ago, the government released one such indicator. So we are talking about the index of industrial production.
Now to be fair, IIP isn't a perfect leading indicator either.
The Ministry of Statistics and Programme Implementation releases it every month, but with a 28-day lag, which means the latest IIP data we have right now is for April 2026 And according to that, industrial production grew 4.9 percent compared to the previous month, that is March 2026
Still, because it captures short-term changes in economic activity, IIP gives us an early peak into broader growth trends long before the government releases its national accounts. So calling it a leading indicator isn't exactly a stretch.
But before we get into how IIP can help you understand the economy, we first need to understand what it actually is and how it works. See, IIP is pretty much what the name suggests. It's a monthly gauge of India's industrial sector that tells us whether factory output, mining activity and electricity generation are rising or falling in volume terms compared to a reference or base year. In simple terms, it tries to answer a straightforward question. Are we producing more goods and generating more power than before? That's very different from indicators like inflation or nominal GDP, which tell you whether prices have gone up or down. But how does IIP actually measure this? Well, it starts with a large basket of industrial items spread across broad sectors like mining, manufacturing, electricity and water supply. Every month, the MOSPI collects production data for these items to see how output is changing. Now, not every item neatly fits into a one-month production cycle. Some take longer to produce. So in cases where the production period stretches beyond a month, the MOSPI uses value data for a few items instead. Once that data comes in, the government compares current output with output from a reference year, known as a base year, which right now is 2022-23. This comparison gives us something called a production relative. Each sector then gets a weight based on its importance. Right now, for instance, manufacturing carries the heaviest weight at 76%.
Finally, the government multiplies the production relative by these weights and combines everything into one composite number. And that number is what we call the IIP.
If that felt too theoretical, let's break this down with a simple example. Let's imagine India's industrial production depends on two items. Just two items. A and B. The first thing the MOSPI would do is figure out how much of both items were produced.
Let's say item A recorded an output of 150 kilos during the year, while item B clocked 1200 liters. Now, there's an obvious problem here. You can't really compare kilos with liters. They're completely different units. So, instead of comparing the numbers directly, the MOSPI compares each item's output with its output in the base year. Let's assume Fi23. Say A produced 100 kilo back then, while B produced 1000 liters. This is where production relative comes in. Think of it as a way to standardize production numbers or simply 100 plus or minus the percentage increase or decrease in output. So, for item A, output has gone from 100 kilos to 150 kilos. That means its production relative becomes 150 For B, output has risen from 1000 liters to 1200 liters, so its production relative becomes 120 But here's the thing. Not every item matters equally to industrial production. So the next step is assigning weights based on importance. If item A is more important than B in the country's industrial basket, it could get a weight of 60, while B gets 40 Now the MOSPI multiplies these weights with production relatives. For A, that gives you 9,000 x 150 x 60 For B, it comes to about 4,800 x 120 x 40 Add them up, and you get 13,800. The final step is to divide this by the total weights, which is 100 in this case. And just like that, the final IIP comes to 138 This simply tells us that industrial production is 38% higher than it was in FI23.