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Interpretation of Key Economic Indicators: IIP Index
Interpretation of Key Economic Indicators: IIP Index
In this report, we have used three economic measures to study the current scenario of the
Indian economy. Those are as follows.
The index of industrial production tracks manufacturing activities in different sectors of the
economy. It is a measure of changes in the volume of production of a basket of a product
with reference to some base year. Here, in this case, the base year is taken as 2011-12.
IIP is a crucial indicator, which tracks the supply side of the economy. Supply-side of the
economy depends more on demand-side and inflation levels. Hence as a whole, it measures
the demand for the products in the marketplace.
IIP Index
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A J A F D O A J A F D O A J A F D O A J A F D O A J A F D O
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Here the data depicted in the above chart show the level of industrial production in the
economy. From the graph, we can see that it is maintaining a cyclical path from 2014 to till
date with a cycle of 1-2 years. But from the last two quarters, it is quite low as compared to
the previous trends showing an unwillingness to produce from the supply side.
WPI INFLATION
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The data shown in the above graph depicts the inflation rate measured by WPI. From the
graph, we can see that WPI inflation was negative from December 2014 to June 2016 and
then rosed to a high of 6% during January 2017 and October 2018. This low level of inflation
or decreasing trend in inflation after October 2018 can be attributed to the low level of
consumer demand in the economy.
In the graph above depicting yield of 91-day T-bill across five years is in a declining trend at
a slower rate. It was highest during 2015 and started decreasing to 5.94% from the level of
8.19 % and again rose to 6.94% before ending at 5.12% on sepetember 2019. This behavior
of T-bill yield can be partially attributed to recent declining trend in inflation and slowdown
in the economy as a result T-bill becoming attractive investment at low-risk profile.
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N.B. (In the above graph line chart, marked line chart and stacked column depicts t-bill
yield, WPI inflation rate and IIP index respectively )
From the above figure we can see direct relation between the three depicted variable.
Although they are not completely aligned with each other, this is because these numbers are
not dependend on a single factors, there are various economic factors pushing or pulling them
from behind.
During 2015, when inflation rate was at its lowest, the industrial production also came down
and so yield on T-bill though at a slower rate. We can observe a high correlation between IIP
and WPI because IIP depends on WPI to a large extent. But this behavior is not found in case
of T-bill yield. It may be because, T-bill is just like a bond, which is impacted by various
other factors like interest rate, time duration and other.
In the recent past, after 2018 till date, we can observe a downward trend in all the three
parameter denoting a slowdown in the economy.