Index number is very useful in measuring the relative changes in the value of money. It is very helpful for the guidance and formulation of economic policies. Index numbers of imports, exports, wages , employment and population importance can not be ignored.
Following are the main uses of index number :
1. A Barometer :-
Index numbers serve as a barometer for measuring the value of money. With the help of index number we can easily make a comparison in the value of money in different years.
2. Importance For The Govt. :-
The change in the value of money has a direct effect on the public. So Govt. adopts the fiscal and monetary policy according the results of index numbers.
3. Throws Light On Economic Condition :-
Index numbers are very helpful in comparing the economic conditions of a particular group at two different periods.
4. Consumption Standard :-
If we want to know the true consumption standard of a class in a locality we can compute the consumption index number.
5. Fixation Of Wages :-
The money wages can be revised according the proportionate change in the cost of living. The cost of living index number guides the Govt. and the executives for the fixation and revision of wages.
6. Importance For The Producer :-
Price index number indicates the producer that he should expand the production or he should reduce the production. If price level is rising it means profit rate is high.
7. Analysis Of Industry :-
If we want to judge the prospects of manufacturing concern the investment index number can be constructed, to know the net yield of the industrial sector.
8. Comparison Of Developed and Under Developed Countries :-
International price index number can be used for comparing the general level of prices in the developed and under developed countries.
9. Efficiency Of Labour :-
To check the efficiency and per capita out put of the labour can be shown by index number. Promotion and salary can be also considered keeping in view the index number.
10. Measures To remove Inequality Of Income :-
Index number of whole sale prices also indicate about the regional disparity. So different measures can be taken for the proper distribution of wealth and stabilizing of prices.