Question

Explain the various steps involved in the construction of index number on industrial production.

Answer 1

Following are the steps involved in the construction of index number on industrial production:

(i) Classification of Industries - Major industries are group under the following heads:

(a) Mining

(b) Manufacturing

(c) Electricity

(ii) Choice of the base year - The base year should be the year of economic stability. It should not be at much distance from the current year.

(iii) Data related to industrial production - The data relating to the production of different industries are collected

(iv) Weightage - Weights are assigned on the basis of the relative importance of different industries. The weights are based on the values of the net output of different industries, capital invested and their contribution to national income.

(v) Formula - Index number on industrial production is calculated by using the following formula:

Index Number $=\frac{\sum [\frac{q_1}{q_0}\times 100]W}{\sum W}$

where, $q_1=$ Current year's quantity, $q_0=$ Base year's quantity, W = Weight.