Index Numbers are specialized averages designed to measure the change in a group of related variables over a period of time. Index numbers have today become one of the most widely used statistical devices and there is hardly any field where they are not used.
According to Spiegel, “An Index Number is a statistical measure designed to show changes in a variable or a group of related variables with respect to time, geographic location or other characteristics such as income, profession etc.”
Importance of Index Numbers :
(i) Help in Framing Suitable Policies : Index numbers provide guidance in administrative policy determination. For example in determining dearness allowance of the employees cost of living index are used.
(ii) They Reveal Trends : Index numbers are most widely used for determining the commercial and industrial trends. By examining the index numbers of industrial production of last few years, we can conclude about the trend of production.
(iii) Helps in Comparative Study : Data which cannot be compared with the help of simple averages, index numbers can be used because they are in relative form
(iv) Important in Forecasting : Index numbers are often used in time series analysis, the historical study of long-term trend, seasonal variations etc.
(v) Universal Application : Index numbers are useful in economic, commercial, social and in every field such as agriculture etc.
