India’s Gross Capital Formation

In simple words Gross Capital Formation is Investment. When people save, they tend to invest. The percentage of the investment made each year out of the total GDP is called Gross Capital Formation.
So, Rate of Gross Capital Formation is arrived as follows:
Rate of Capital Formation = (Investments /GDP) X 100
  • The importance of the Gross Capital formation lies in the fact that this is that part of GDP which helps in the growth of the GDP itself. This is a must for achieving high rate of production, capital formation, changes in production techniques and changing in the outlook of the people themselves.
  • To achieve, the Optimum rate of economic growth, the rate of capital formation should be above 40%. In India, the gross capital formation for the year of 2009-10 was 36.5% of the GDP. It was composed of 9.2% in Public Sector and 24.9% in Private sector. The investment from the Household sector was 11.7%. Investment from the corporate sector was 13.2%.

The following chart shows the trend of the Investment as part of GDP in recent few years:

List of Topics : Economic Survey 2010-11