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Economy

The Mystery of the Rubber Insulated Cable in the IIP

With the rise in the Index of Industrial Production (IIP) yesterday to +2.6%, a rumour started to float around that all of this was caused by a spike in one piece of data. An item called “Cable, Rubber Insulated” had gone up 336% (more than three times) and this caused the IIP to go hugely positive.

That is not true.

IIP is constructed by assigning different weights to different items, and then aggregating them up to form the index. Together all items have a weight of 1,000. At a broad level, production data comes in three categories: Mining (weight: 142), Manufacturing (755) and Electricity (103).

Mining and Electricity have no sub-categories revealed.

Manufacturing comes with 21 sub categories, like “Food Products”, “Chemicals” and so on (given a “two digit code”. Each of these is further subdivided into four digit code items, like Fruit Pulp is part of a Food Products.

We only get data at the sub-category level, not the actual item. Certain items are revealed in the press release if they are outliers, that’s all.

It is true that Rubber Insulated Cable went up 336%. But that impact on the IIP, because of the small weight of the item (only 1.2276 out of 1,000), is a much smaller number of 0.41%.

IIP Increase by items

IIP, July 2013 (Index was +2.63%)

The larger impact was in the bigger weighted items of Apparels and Garments, which increased IIP by +0.81% and +0.47%.

This could be because of a big revival in garment exports after the slide in the rupee. If so, I would expect August IIP to be just as robust.

The impact of rubber insulated cable cannot be undermined (0.41% is still 1/6th of the entire IIP increase!). In fact it’s parent category, Electrical Machinery, was up 83.65% and provided for 1.66% of the total increase in IIP (which was up +2.63%). So yes, we’ve seen a surge in things Electrical.

Impact: If Apparel/Garment production is up, it could mean a pretty huge increase in revenue for garment exporters. If electrical machinery is up a lot, that might point to a revival in electrical equipment or power. This should start getting visible in revenues, when they are revealed in October.