GVA & IIP

Subject: Economics

Context: The IIP manufacturing and manufacturing GVA growth are highly correlated (almost 0.9) and this correlation collapsed in Q2 when IIP manufacturing declined by 6.7% (average of July, August and September) while manufacturing GVA grew by 0.6%.

Concept:

Gross Value Added:

• As per the SNA, GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
• It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
• It can be described as the main entry on the income side of the nation’s accounting balance sheet, and from an economics perspective represents the supply side.
• At the macro level, from a national accounting perspective, GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
• Gross Value Added = GDP + subsidies on products – taxes on products
• Earlier, India had been measuring GVA at ‘factor cost’ till the new methodology was adopted in which GVA at ‘basic prices’ became the primary measure of economic output.
• GVA at basic prices will include production taxes and exclude production subsidies.
• GVA at factor cost included no taxes and excluded no subsidies.
• The base year has also been shifted to 2011-12 from the earlier 2004-05.
• The NSO provides both quarterly and annual estimates of output of GVA. It provides sectoral classification data on eight broad categories that includes both goods produced and services provided in the economy.

Index of Industrial Production

• The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
• It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation.
• IIP is a composite indicator that measures the growth rate of industry groups classified under:
• Broad sectors, namely, Mining, Manufacturing, and Electricity.
• Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
• Base Year for IIP is 2011-2012.
• The eight core industries of India represent about 40% of the weight of items that are included in the IIP.

Significance of IIP :

• IIP is the only measure on the physical volume of production.
• It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc, for policy-making purposes.
• IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates