What is Gross Fixed Capital Formation (GFCF)?

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The failure of private investment, as measured by private Gross Fixed Capital Formation (GFCF) as a percentage of GDP at current prices, to pick up pace has been one of the major issues plaguing the Indian economy.

About Gross Fixed Capital Formation (GFCF)

  • GFCF refers to the growth in the size of fixed capital in an economy.
  • Fixed assets/capital are tangible or intangible assets produced as outputs from production processes that are used repeatedly, or continuously, for more than one year.
  • GFCF consists of resident producers’ investments, deducting disposals, in fixed assets during a given period.
  • It also includes certain additions to the value of non-produced assets realized by producers or institutional units.
  • Private GFCF can serve as a rough indicator of how much the private sector in an economy is willing to invest.
  • Overall GFCF also includes capital formation as a result of investment by the government.
  • GFCF matters because fixed capital, by helping workers produce a greater amount of goods and services each year, helps to boost economic growth and improve living standards. 
  • In other words, fixed capital is what largely determines the overall output of an economy and, hence, what consumers can actually purchase in the market. 
  • Developed economies such as the U.S. possess more fixed capitalper capita than developing economies such as India.
  • Statistics:
    • GFCF in the Indian economy increased significantly from INR 32.78 lakh crore in 2014-15 to INR 54.35 lakh crore in 2022-2023.
    • This surge in capital formation reflects substantial investments in infrastructure, industry, and public goods.

Q1: What is Gross Domestic Product (GDP)?

It is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

Source: Why have private investments dropped? | Explained