Gross Fixed Capital Formation

Subject – Economy

Context – Gross fixed capital formation rate sees decline in 2020-21

Concept –

Gross fixed capital formation (GFCF), which is an indicator of the level of investments in the country, fell by 10.8 percent during the financial year 2020-21 as compared to a rise of 5.4 percent during the previous fiscal.
Gross fixed capital formation (GFCF) refers to the net increase in physical assets (investment minus disposals). It does not account for the consumption (depreciation) of fixed capital.
As per RBI, Gross capital formation refers to the ‘aggregate of gross additions to fixed assets (that is fixed capital formation) plus change in stocks during the counting period.’
- Fixed asset refers to the construction, machinery and equipment.
It is a component of expenditure approach to calculating Gross Domestic Product (GDP).
GFCF is not a measure of total investment, because only the value of net additions to fixed assets is measured, and all kinds of financial assets, as well as stocks of inventories and other operating costs are excluded.
GFCF is an indicator for gauging the fixed capital formation. A downward trajectory in gross fixed capital formation would indicate that the fixed capacities are not being ramped up.