Index investing is passive investing.

We need investors who actively invest, by evaluating the companies, so that more money goes to good companies and less money goes to bad companies. The index represents the current batch of the top 500 good companies in recent times as decided by the active investors. The index is re-balanced as the preferences of the active investors change.

So, if there were no active investing, then investing would be completely pointless.

Relative pricing between stocks is due to investors actively bidding up the price or letting it slide down. They do this based on either information about company fundamentals, or instinct on how the market will eventually react to news. This form of information or instinctual arbitrage nets active traders a profit.

As an increasing number of low-intensity investors broadly invest in the entire market space, it overinflates asset prices and diminishes the efficiency of this market space, to a degree. It's hard for news to knock on VW stock prices, for example, if the index funds keep buying it like clockwork anyway. Of course, it's possible that this system increases information arbitrage, but the overall effect is that index funds become less efficient as more investors rely on them.