India proposes replacing closed factories to improve accuracy of industrial output data

NEW DELHI: India’s statistics ministry has proposed revamping the way it compiles the country’s key industrial output index by replacing closed factories in the sample with active facilities, a move aimed at improving data accuracy and aligning with global standards.

The federal government currently uses 2011–12 as the base year to compile the Index of Industrial Production (IIP), adopted in 2017 to reflect changes in industrial activity and align with updated national accounts.

It now plans to shift the base year to 2022–23 as part of a broader statistical overhaul covering key datasets, including GDP and the Consumer Price Index (CPI), to better capture newer industries and structural shifts.

Under the proposed methodology, factories reporting zero output or no data for three straight months would be reviewed, and if found shut or producing different goods, would be replaced with a similar unit identified from the latest annual industries survey.

The replacement would be adjusted using a 12-month “substitution factor” to maintain continuity in the index, the government said in a press release.

This would mean that both factories must have 12 months of overlapping data, during which they produced the same item or item group.

According to the government’s discussion paper, about 8.9% of the sample of factories in IIP’s current series relates to units that have been closed over time, leading to distortions in the index.

The paper also said that the change will help capture structural shifts in industry and avoid underreporting during periods of factory churn.

The proposed changes, according to the government, have been recommended by an internal Technical Advisory Committee, which also reflects suggestions from the International Monetary Fund.

The government has invited comments and suggestions on these proposed rules from stakeholders by November 25.

The industrial output rose more-than-expected at 4% year-on-year in September, driven by growth in manufacturing.