The Indian government is undertaking a significant transformation in how it measures industrial growth, proposing to replace factories that have permanently shut down with active manufacturing units in its key economic indicator calculations.
Addressing Data Gaps in Industrial Measurement
The Ministry of Statistics and Programme Implementation (MoSPI) has floated a discussion paper outlining plans to substitute non-operational factories in the sample used to compute the Index of Industrial Production (IIP). This crucial monthly economic indicator, along with the Consumer Price Index (CPI), provides vital insights into India's economic trajectory.
According to the proposal, if a factory reports zero production or fails to submit production data for three consecutive months, authorities will conduct a status verification. Once confirmed that the facility has either closed permanently or shifted to manufacturing different products, it will be removed from the sample and replaced with another operational factory.
Why This Change Matters
The ministry highlighted that in the current series, closed factories account for approximately 8.9% of the index weight. This situation creates challenges in maintaining IIP series continuity and increases reliance on estimation methods. Continuing with factories that no longer represent actual production distorts the accuracy of industrial growth measurements, making factory substitution necessary for data integrity.
MoSPI has invited stakeholder feedback on this proposed methodology change until November 25, 2025, ensuring the final calculation method is robust and widely supported. The international practice already accepts factory substitution as standard procedure.
Strict Criteria for Factory Replacement
The replacement process follows stringent guidelines to maintain data consistency:
- The new factory must manufacture the same item or products within the same category group
- The gross value added or gross output should be comparable to the replaced factory
- The facility must have been operational for at least 12 months
- Twelve months of production data prior to inclusion is mandatory
The discussion paper notes that until overlapping data is obtained, temporary 'nil' or imputed values might be used in the series, potentially showing a few months of zero production before substitution takes effect.
This factory substitution initiative forms part of a comprehensive IIP review, which includes updating the base year to 2022-23 from 2011-12. The revised IIP numbers with the new base year are scheduled for release starting May 2026.
Currently, IIP data is compiled from 14 source agencies covering 407 items across mining, manufacturing, and electricity sectors. These items are categorized into six use-based groups: primary goods, capital goods, infrastructure/construction goods, intermediate goods, consumer durables, and consumer non-durables.
As per recent data, India's industrial growth measured by IIP stood at 4% in September 2025. During the first half of 2025-26, industrial output recorded 3% growth compared to the same period last year, slightly lower than the 4.1% expansion witnessed in the previous year.
