Index Number of Industrial Production

The index number of industrial production is designed to measure increase or decrease in the level of industrial production in a given period compared to some base period. It should be noted that such an index measures changes in the quantum of production and to in values for constructing such an index it is necessary to obtain data about the level of industrial output in the base period and the given period. Usually data about production are collected under the following heads:

1. Textile industries – cotton, woolen, silk, etc.

2. Mining industries – iron ore, coal copper, petroleum, etc.

3. Metallurgical industries – iron and steel, etc.

4. Mechanical industries – locomotives, ships, aero planes, etc.

5. Industries subject to excise duties – sugar, tobacco, match, etc.

6. Miscellaneous – glass, soap, chemical, cement, etc.

The figures of output for the various industries classified above are obtained on a monthly, quarterly or yearly basis. Weights are assigned to various industries on the basis of some criteria such as capital invested, turnover, net output, production, etc. Usually the weights in the index are based on the values of net output of different industries. The index of industrial production is obtained by taking the simple arithmetic mean or geometric mean or the relatives. When simple arithmetic mean is used the formula for constructing the index becomes:

Index of industrial production =  ∑ (q1/q0)W
                     ____________________∑W

where q1 = Quantity produced in the given period
    ____q0 =    ”    ”    ”    base    ”
   _____ W = Relative importance of different outputs.

For determining the relative share of an individual outputs to total outputs, the concept of value added is most commonly used.

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