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Index of Industrial Production (IIP) - Indicator for India Inc’s growth

What is IIP ?

IIP number or IIP data (Index of Industrial Production) is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time. IIp number is one of the best statistical data, which helps us to measure the level of industrial activity in Indian economy. Please note that IIP data is a short-term indicator of our industrial growth till the actual results from Annual Survey of Industries (ASI) is published. IIP data is a very important indicator to the Government for planning purposes and is also used by various organisations like Industrial Associations, Research Institutes, Financial Institues and Academicians.

How IIP Data is formed?

IIP data is a simple index which provides information about the growth of different sectors of our economy like mining, electricity, Manufacturing & General. The IIP index reflects the growth in India’s industrial activity and excludes all kinds of services. The base year for the index over the period of the analysis is 1993-94.

Use-Based Classification

Another classification is use-based (consumption based), where IIP is classified on the base of use like Basic Goods, Capital goods, Intermediate goods & consumer goods.

Sectors in IIP Data

The weightage of Indian IIP data is broadly divided into three segments – manufacturing (79.36%), mining & quarrying (10.47%) and electricity (10.17%)...

Manufacturing : includes items like food items, machinery, wood furniture etc

Electricity : includes generation and transmission of electricity ( from various sources like - thermal, hydro, solar etc)

Mining : includes mining of coal, oil other metals etc

Manufacturing is the major sector, which is further divided into 17 industry groups like 

* Food Products

* Beverages,Tobacco and related Products

* Cotton Textiles

* Wool, silk and man made fibre textiles

* Jute and other vegetable fibre textiles

* Textile products including wearing apparel

* Wood and wood products (furniture & fixtures)

* Paper, paper products, printing and allied industries

* Leather and leather and fur products

* Basic Chemicals & Chemical Products (except products of Petroleum & Coal)

* Rubber, Plastic, Petroleum and Coal Products

* Non-Metallic Mineral Products

* Basic Metal and Alloy Industries

* Metal Products and Parts, except Machinery and Equipment

* Machinery and Equipment other than Transport equipment

* Transport Equipment and Parts

* Other Manufacturing Industries

How will it affect the Bank Loan interest rates

What is Reverse Repo Rate in India

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Relation between Inflation and Bank interest Rates

Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.

What is Inflation?

Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

What is SLR ? 

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand.

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..

SLR to Control Inflation and propel growth

SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.