Gross Fixed Capital Formation (GFCF)

Gross Fixed Capital Formation (GFCF)

News: The Gross Fixed Capital Formation (GFCF) in the Indian economy has increased from over Rs 32 lakh crore (constant 2011-12 prices) in 2014-15 to about Rs 54 lakh crore in 2022-23 (Provisional Estimates).

What is GFCF?
• GFCF is an indicator of how much of the new value added in the economy is invested rather than consumed. It reflects the amount of resources that are used to increase or maintain the stock of fixed assets, such as buildings, machinery, equipment, and software. GFCF can affect economic growth in several ways.
• GFCF can stimulate aggregate demand and economic activity in the short run by creating income and employment for the workers and suppliers involved in the investment projects. This can have a multiplier effect on consumption and output.
• GFCF can enhance the productivity and competitiveness of the economy by introducing new technologies, innovations, and skills that can improve the efficiency and quality of production. This can lower the costs and increase the profits of firms, as well as raise the living standards of consumers.
• According to some empirical studies, there is a positive relationship between GFCF and economic growth in both developed and developing countries. However, the magnitude and direction of this relationship may depend on various factors, such as the type, sector, and source of investment, the level of development, the institutional environment, and the macroeconomic policies of each country.