REPORT ON INDEX OF

INDUSTRIAL PRODUCTION OF
MANUFACTURING SECTOR FROM
APRIL 2008 TO MARCH 2010

Based on “Press Information Bureau Government of India”

taking Base year index as 1993-94
INDEX OF INDUSTRIAL PRODUCTION
FOR MANUFACTURING SECTOR
FROM APRIL 2008 TO MARCH 2010

Based on “Press Information Bureau Government of India” taking

Base year index as 1993-94

Prepared for

Mrs.(Dr.) Mona Bhalla (Professor of Economics)

Unitedworld School of Business
Mrs. Madhu Iyengar (Professor of Statistics)
Unitedworld School of Business

Prepared by
Kinjal Adodra
Noorinder Singh
Ronak Deswal
Jugal Shah

December 3, 2010
TABLE OF CONTENTS:

 Introduction……………………………………………...4
 Major affected areas……………………………………5
 Introduction of monetary policy……………………….6
 Introduction of fiscal policy…………………………….7
 Major changes in IIP……………………………………8
 Line Graph of IIP………………………………………..9
 Line Graph of manufacturing sector………………….9
 Bibliography…………………………………………….10
Introduction:
What is IIP: IIP is an Index which details out the growth of various sectors in an
economy. Indian IIP constitutes mainly of sectors like mining, electricity,
manufacturing and general.

In case of India the base year has been fixed at 1993-94 hence the same would be
equivalent to 100 points.

Method to calculate IIP ------- Laspeyre’s Formula

IIP: as per classification by economic activity, thee IIP is broadly split into three
segments- Mining, Manufacturing and Electricity with weights of 10.47 %, 79.36%
and 10.17 % respectively. The manufacturing sector is further split into 17 sub
segments with ‘basic chemicals and chemical products’ and ‘Machinery and
equipment other than Transport equipment’ have the maximum weightage of
14% and 9.6% respectively.

GDP fell in February 2008 majorly due to subprime crisis which occurred in USA.
In economics, a recession is a general slowdown in economic activity over
a sustained period of time, or a business cycle contraction. Production as
measured by Gross Domestic Product (GDP), employment, investment spending,
capacity utilization, household incomes and business profits all fall during
recessions.
Major affected areas:
 IT Enabled Services sector was the hit since a majority of Indian IT firms derive
75% or more of their revenues from the United States as US market Crashed
and it had an impact on Indian IT companies. They started Job cutting for the
purpose of cost cuttings.
 Due to unemployment the demand for domestic goods decreased which led to
fall in production.
 The Manufacturing sector suffered negative growth as there was decline in
production due to which there was increase in marginal cost and total cost.
 There was slowing mainly in construction, transport, communication, trade,
hotel and restaurant subsectors.
 Indian Exports decline due to US Market crash which led to decrease in
demand of domestic goods in foreign market
 Bank credit demand decreases > due to uncertainty business confidence fell
down> dampened demand has dented the corporate margins. Simultaneously,
Bank was vigilant to give loans to industries because of industry slowdown.
 Production Decrease> IIP remain stagnant and registered negative growth
(mainly manufacturing) > Investment demand decreased.
Fiscal and monetary policies have helped India in
dodging the recession and sustaining the economy.

Introduction of Monetary Policy:

 Repo rate increase 50 bps from 8.5 % to 9%.
 CRR to be hiked by 25 bps to 9%
 RRP under the liquidity adjustment facility kept unchanged at 6%
 Money Supply increase by 20%
 Y-O-Y, CPI based inflation for agricultural and rural laborers grew to
8.8% and 8.75% respectively in June 2008 from 7.8% and 7% a year ago.
 Export Increased by 21.7% in US $ terms during these years.
 The rupee depreciated by 5.4% against the dollars by 5% against the
euro and 5.2% against the pound sterling and 1.3% against the Japanese
yen.
Introduction of Fiscal Policies:
Changes in government Policies:
 Reserve bank shifted its policy from monetary tightening to monetary
easing in response to easing inflationary pressures and moderation growth.
 Taking a cue from RBI’s monetary easing, most bank have reduced their
deposit and lending rate.
 Demand was stimulated by launching 3 fiscal stimulus packages during
December-08 - feburary-09 along with farm loan waiver package, payout
following 6 pay commission and expanded safety net programmed from the
rural poor.
 100-day plan to revive the economy are ways to ensure food security and
better implementation of the rural employment guarantee scheme besides
several measures to boost growth.
 In the beginning of 2009, the government of India further relaxed the
norms for foreign direct investment (FDI) in various sectors.
100% foreign investment will henceforth be permitted in mining of titanium
bearing minerals.
 The new FDI policy has also done away with the norms of 26 per cent
compulsory equity divestment in fuel and gas trading ventures.
 Consumer durables goods output continued to surge on the back of fiscal
spending, growing an annual 46 % in December. A notable feature is that
manufacturing and infrastructure industries such as mining and electricity
have recorded encouraging growth numbers. Growth in manufacturing
sector is back to normal.
 Government has cut duties and increased spending to protect growth and
jobs.

Major changes in IIP:

  Industrial output grew at its fastest pace on record in December, smashing
forecasts, in further evidence of a strong economic recovery that could
allow the government to follow the central bank in withdrawing stimulus.
 The Part which raised the IIP is the manufacturing sector which performed
well and the growth came in at 11.1 % versus (-) 0.6 %.
 49 per cent FDI ceiling for commodity exchanges has further been divided.
While the investment ceiling for FDI has been pegged at up to 26% that for
FIIs has been fixed at 23 per cent, even no single investor would be
permitted to hold a stake of more than five per cent.
 Considered as one of the most favorite investment destinations, the FDI
inflow into is expected to touch $ 30 billion this fiscal year (2009-2010).
 The fall in October IIP was mainly because of manufacturing sector growth
falling to negatively 1.2% from an increase of 13.8% a year earlier.
 On a sartorial basis, 10 out of 17 industry groups posted negatively growth
in October.
 Growth in India's six core infrastructure industries slowed to 2.2 % in
November 2008 as petroleum refinery products, electricity production and
finished steel showed poor performance.
 The performance of the exports sector was dismal in January 2009. India's
exports fell for the fourth month in a row in January 2009. Exports fell an
annual 15.9% in January 2009 to $12.38 billion as the global slowdown
shaved off demand for Indian goods.
 Six core sector industries comprising crude oil, petroleum refinery products,
coal, electricity, cement and finished steel - recorded a growth of 2.2 per
cent in February 2009 compared to a growth rate of 7 per cent in February
2008, showing the first signs of a pick-up in industrial production.
 The manufacturing output for April has gone up to 0.7% in April 2008 (Y-o-
Y).  As many as 11 out of 17 industry groups showed a positive growth.
Line Graph of IIP:
 IIP
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8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0
pr-0 ay-0 un-0 Jul-0 ug-0 ep-0 ct-0 ov-0 ec-0 an-0 eb-0 ar-0 pr-0 ay-0 un-0 Jul-0 ug-0 ep-0 ct-0 ov-0 ec-0 an-1 eb-1 ar-1
A M J A S O N D J F M A M J A S O N D J F M

IIP

Line Graph of Manufacturing sector:

Manufacturing sector Index

380
370
360
350
340
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320
310
300
290
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270
8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0
pr-0 ay-0 un-0 Jul-0 ug-0 ep-0 ct-0 ov-0 ec-0 an-0 eb-0 ar-0 pr-0 ay-0 un-0 Jul-0 ug-0 ep-0 ct-0 ov-0 ec-0 an-1 eb-1 ar-1
A M J A S O N D J F M A M J A S O N D J F M

Manufacturing sector Index

Bibliography:
 www.indianexpress.com/.../iip...200910
 http://www.financialexpress.com/
 http://mostlyeconomics.wordpress.com/2010/05/21/iip-
2009-10-update/
 http://www.mospi.gov.in/mospi_iip.htm
 http://www.businessstandard.com/
 Business statistics textbook