Gross Fixed Capital Formation (GFCF)

Gross Fixed Capital Formation (GFCF)

In official national accounts, gross fixed capital formation (GFCF) is a macroeconomic concept. GFCF is a component of gross domestic product (GDP) spending and so indicates how much of the new value created in the economy is invested rather than consumed. It is one of the components of the expenditure approach to computing Gross Domestic Product (GDP). GFCF is not a measure of total investment because it only measures net additions to fixed assets and excludes all types of financial assets, as well as inventories and other operating expenditures (the latter included in intermediate consumption).

Land improvements, plants, machinery, equipment purchases, and the construction of roads, trains, schools, offices, hospitals, private residential residences, and commercial and industrial buildings are examples of fixed assets. Gross fixed capital formation (GFCF), often known as gross domestic investment, is the sum of expenditures on additions to the economy's fixed assets plus net changes in the level of inventories. The net increase in physical assets is referred to as gross fixed capital formation (GFCF) (investment minus disposals). It does not account for fixed capital consumption (depreciation).

According to the RBI (Reserve Bank of India), "gross capital formation refers to the 'aggregate of gross additions to fixed assets (that is, fixed capital formation) plus stock change during the counting period."

GFCF is not a measure of total investment because it only considers net additions to fixed assets and excludes all types of financial assets, inventories, and other operating expenditures. The GFCF is a measure of fixed capital formation. A negative trend in gross fixed capital formation suggests that fixed capacity is not being increased.