Index number are constructed with certain specific objectives. So, their use is limited. In the context of this statement, discuss any four limitations.
The limitations of index number are as follows
(i) Limited Applicability Index number are generally constructed for some specific purpose. If
we want to use these for some other purpose, the results may not be true. There are no all purpose index numbers. .
(ii) International Comparison is not Possible Due to difference in the unit of currency and also difference in the composition of production and consumption across the different countries, index number fail to facilitate international comparison.
(iii) Limited Coverage Index number are usually based on sample items. It is not practically possible to include all the commodities into the construction of index numbers. If the selected items are not able to represent the entire universe, then index numbers will not be true.
(iv) Difficulties in the Construction of Index Number The construction of index number involves several problems such as selection of base year, selection of commodities, selection of average, selection of source of data, etc.