What do you mean by Gross Capital Formation and Net Capital Formation?

1.	What do you mean by Gross Capital Formation and Net Capital Formation?
Answer» Every producing unit has to make provisions for the depreciation of the plant and machinery. So, it keeps aside a part of its profits for replacing the warm out machinery and plant. But it sometimes keeps another part of its income away for buying new machinery and equipment when it feels a need to expand itself. So every producing unit not only keeps its capital intact but it tries to expand its productive capacity through making additions to further capital in future. So, the gross capital formation induces two things: Maintaining capital intact. Making further additions to capital equipment to expand the volume of production. While net capital formation includes only one thing, i.e., making further Addition to capital equipment.

Answer»

Every producing unit has to make provisions for the depreciation of the plant and machinery. So, it keeps aside a part of its profits for replacing the warm out machinery and plant. But it sometimes keeps another part of its income away for buying new machinery and equipment when it feels a need to expand itself. So every producing unit not only keeps its capital intact but it tries to expand its productive capacity through making additions to further capital in future.

So, the gross capital formation induces two things:

Maintaining capital intact.
Making further additions to capital equipment to expand the volume of production.

While net capital formation includes only one thing, i.e., making further Addition to capital equipment.

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