The new IIP (Index of Industrial Production) data series released by the government last week better reflects the knock taken by the economy from the effect of demonetisation.

Going by the new 2011-12 data series, monthly growth in industrial production ‘realistically’ slowed down post-demonetisation as against a recovery reflected by the 2004-05 data series.

To compute the demonetisation impact, monthly growth rates of industrial production were compared for two time periods, from April 2016 to October 2016 (pre-demonetisation) and November 2016 to March 2017 (post-demonetisation).

Using the new 2011-12 data series, the average monthly IIP growth rate during the pre-demonetisation period was 6.3 per cent. Post-demonetisation, it fell to 3.3 per cent. The new data series clearly indicated halving of growth figures post-demonetisation.

Moreover, it seems to have captured the subsequent recovery quite well. After clocking higher growth rates of 4.9 per cent and 5.7 per cent in October and November 2016, the IIP expansion slowed down to 2.6 per cent in December 2016. Subsequently, it hit a low of 1.9 per cent in February 2017 before recovering to 2.7 per cent in March; by the end of March 2017, the demonetisation process was over.

However, using the 2004-05 data series, the average monthly IIP growth rates showed an improvement post-demonetisation. Compared to the pre-demonetisation growth average of -0.3 per cent, the growth figures improved to 2 per cent. This was definitely not in sync with the ground reality.

With a 78 per cent weightage under the new index, it is the better representation of manufacturing data that’s made all the difference.

Manufacturing growth under the 2011-12 series, clocked a monthly average rate of 6.9 per cent before demonetisation. It fell subsequently to a third of that level (2.3 per cent) during the last five months of 2016-17.

As against the monthly growth rates of 5.9 per cent and 4.9 per cent in October and November 2016, growth rates fell to 0.9 per cent in December before limping back to 1 per cent plus rates in February and March.

However, the 2004-05 data indicated a slight turnaround in manufacturing growth. As against a 1 per cent contraction during the first seven months of 2016-17, the growth rates improved to 1.2 per cent post-demonetisation.

Moreover, contrasting trends were discernible in the electricity sectors using different data series. While growth rates slowed from 6.1 per cent to 5.7 per cent using the new 2011-12 series, under the old series, there were signs of recovery – from 4.7 per cent to 5 per cent despite the onslaught of demonetisation.

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