The term “Index Number” literally means a numerical figure that indicates the value of a variable effected at a particular time in terms or percentage of its value that stood on a different time. Because of its multifaced aspects, it is described in various ways. Popularly, it is described as a special type of average that gives a central idea of changes in a particular phenomenon viz. price, quantity, values etc. over a period of time. Some economists describe it as a barometer of price level changes, or any other economic activity. However, the idea of computing the index numbers came into being for the first time in 1764 in Itally with the comparison of the price level changes of 17540 in relation to the price level of 1500. Now, it is being used as a formidable instrument by the statisticians in almost all ht fields of human activities viz. business, economics, industries and commerce to find out the gist of the changes in any phenomenon over a period of time.
The salient characteristics of index number can be brought about as under:
- It involves the computation of average value of a phenomenon viz. price level, cost of living, business, or economic activities.
- It makes relative study of changes of a phenomenon over a period of time.
- It expresses the results through the technique of common denominator, 100 without using the sign of percentage.
- It measures changes of a phenomenon viz. price level, volume level, value level, crime level etc. which are not capable of direct measurement.
- It makes comparative study of a phenomenon over different times, or places.