Meaning:

Index number measures and compare economic variables it indicates percentage or ratio of changes in variables between two different period of time. It measure the changes in price quantity, value from one period of time to another period of time. It calculate the ratio of the current year value with the ratio of the base year value. The year with which the current year is compared is called base year. The difficulties in the construction of index numbers are complex and comprehensive.

Difficulties in the construction of Index Numbers.

• Selection of Base Year: Selecting an appropriate base year is critical. The base year should be normal, free from economic anomalies such as recessions or booms. Periodically updating the base year to reflect more recent conditions can be complex and resource-intensive.
• Selection of commodities: The choice of representative commodities is not an easy matter they have to be selected from a wide range of commodities which the majority of people consume the consumption pattern of consumer might change and their by make the index number useless. So the choice of representative commodities presents real difficulties.
• Collection of prices is difficult: Another difficulty is that of collecting adequate and accurate prices. It is often not possible to get them from the same sources or places further; the problem of choice between wholesale and retail prices arises. There is much variation in the retail prices therefore index numbers are based on wholesale prices.
• Difficulties arises from changes over time: In present time changes in the nature of commodities are taking place continuously overtime due to technological changes as a result new commodities might introduce and people start consuming them in place of the old ones. More over price of commodities also change with technical changes they may fall. But new commodities are not entered into the list of commodities in preparing the index number. This makes the index number based on old commodities unreal.
• Not for every purpose: An index number constructed for a particular purpose cannot be used for some other purpose for instance cost of living under index number for industrial worker cannot be used to measure the cost of living of agriculture workers. Thus, here are no all purpose index number
• International comparison not possible: International price comparison is not possible with index number. The commodities included in the construction of an index number differ from nation to nation. for Eg. meat, eggs, cars and electrical goods are included in the price of Index of advanced countries where as they not included in that of backward countries.
• Choice of Items: It is very important that the items included in the index are representative of the category being measured. Some items may have insufficient or unreliable data, which makes them difficult to include.
• Comparability: Making international comparisons can be complicated due to differences in methodologies and data collection practices across countries. Ensuring that the index remains comparable over time, despite changes in methodology or the basket of goods and services.
• . Weighting: Determining appropriate weights for different items can be subjective and controversial. Weights should ideally reflect current consumption patterns, which may change over time.

also read: explain the uses of index numbers.