New Delhi: The Ministry of Statistics and Programme Implementation (MoSPI) has initiated consultations with experts, academicians, government departments, and other stakeholders on the proposed methodology for factory substitution as part of the ongoing base year revision of the Index of Industrial Production (IIP) to 2022-23.
The proposed framework, detailed in the ‘Discussion Paper 1.0: Substitution of Factories in the Compilation of the Index of Industrial Production’, seeks to improve sectoral representation and ensure the continuity and robustness of the IIP series in light of operational changes across India’s industrial landscape.
The IIP measures short-term changes in industrial output across the mining, manufacturing and electricity sectors, and is compiled using the Laspeyres Index formula. Sector-level weights are derived from Gross Value Added (GVA) figures reported in the national accounts statistics for the base year.
Currently, the IIP is based on a fixed panel of factories selected during the base year. However, over time, some factories shut down, suspend operations, or diversify production. To maintain the representativeness of the industrial output, the MoSPI has proposed a systematic methodology for substituting such factories with suitable replacements producing the same item or item group.
MoSPI moves to revamp the Index of Industrial Production, replacing defunct or inactive factories with new ones to ensure a more accurate picture of India’s manufacturing landscape
According to the proposed framework, substitution will be triggered if a factory reports zero production or fails to submit data for three consecutive months. The source agency will then verify whether the factory has ceased operations or changed its production line. Replacement factories will be identified using the latest Annual Survey of Industries (ASI) data, with priority given to those producing similar items and having comparable Gross Value of Output (GVO) or GVA.
To maintain continuity in the time series, an adjustment factor (AF) will be computed based on overlapping production data for 12 months between the old and new factories. The adjusted production data of the substitute factory will then be incorporated into the index calculation using the Laspeyres formula.
The technical advisory committee on IIP (TAC-IIP), along with experts from the International Monetary Fund (IMF), has emphasized adopting international best practices to enhance the accuracy and policy relevance of the revised IIP series.
Operationally, factory substitution will take effect only after official confirmation from the source agency. In cases where overlapping data are unavailable, imputed or nil values may be temporarily used until the replacement factory’s data are validated. Illustrative cases in the discussion paper demonstrate the impact of substitution on item-level indices and growth rates, comparing outcomes with and without factory replacement.
Through this exercise, MoSPI aims to make the new IIP base year more reflective of current industrial realities and aligned with global statistical standards. The ministry has invited comments and suggestions from stakeholders on the proposed methodology by November 25, 2025, to ensure that the final approach is transparent, consultative, and technically sound.