Context: According to the World Bank's projections, India's Gross Fixed Capital Formation (GFCF) is expected to slow to 7.8 per cent in FY25 compared to 9.0 per cent in FY24.

Key highlights

• World Bank projected a decline in Gross Fixed Capital Formation (GFCF) in Indian Economy for FY25.

• It revised India’s GDP growth estimate for FY25 to 7%,up from 6.6%, driven by public infrastructure investments and household spending on real estate.

• Despite this growth, urban youth unemployment remains high at 17%,and India is losing market share in labour-intensive sectors like apparel and footwear.

• While industrial growth is expected to slow slightly in FY26, agricultural growth is projected to rise sharply.

• The World Bank emphasized that global trade protectionism and rising tariffs could hinder trade-focused investments.

About Gross Fixed Capital Formation (GFCF)

• Gross Fixed Capital Formation (GFCF) refers to the net investment by an economy in fixed assets such as buildings, machinery, equipment, and infrastructure during a specific period, typically a year.

• It is an important indicator of a country’s economic growth and development as it reflects the level of long-term investments made to improve production capacity.

Definition

• GFCF represents the total value of a country’s investments in fixed assets minus the depreciation (wear and tear) of existing assets.

• It includes spending on physical assets like factories, roads, bridges, machinery, and technology that are used in the production process.

Components of GFCF

• Business Investments: Spending by companies on things like buildings, factories, machinery, and technology.

• Government Investments: Government spending on infrastructure such as roads, schools, hospitals, and public utilities.

• Household Investments: Spending by households on durable goods like homes (real estate investments).

Why is GFCF Important?

• Economic Growth: Higher GFCF generally indicates that an economy is investing in future production capacity, which can lead to increased economic output (GDP) over time.

• Productivity and Employment: Investments in new machinery and infrastructure often lead to more efficient production processes, which can improve productivity and create more jobs.

• Improving Living Standards: Investments in infrastructure like roads, power plants, and schools help improve the overall quality of life for people.

GFCF vs. GDP

• GFCF is a component of Gross Domestic Product (GDP) under the expenditure method, which calculates GDP as the sum of consumption, investment, government spending, and net exports.

• While GDP measures the total economic output, GFCF specifically focuses on the portion of that output dedicated to building long-term assets.

Types of Fixed Assets

• Tangible Assets: These include physical things like buildings, machinery, and equipment.

• Intangible Assets: Although less common in GFCF, it may also include investments in non-physical assets like patents, software, and research and development.