Facts for Prelims (FFP)
Source: TH
Context: Private investment in India, measured by Gross Fixed Capital Formation (GFCF) as a percentage of GDP, has seen a decline since 2011-12. Despite government efforts like corporate tax cuts, private investment hasn’t picked up.
What is GFCF?
Gross Fixed Capital Formation, measures the growth in fixed capital in an economy, including assets like buildings and machinery. It serves as an indicator of private sector investment willingness and includes government investment. GFCF is important because fixed capital boosts economic growth by increasing productivity and living standards. Developed economies tend to have more fixed capital per capita compared to developing ones.
Historically, private investment surged after the 1990s economic reforms but dropped post-2008 financial crisis. It peaked at 27% of the economy in 2007-08 but declined after 2011-12, reaching a low of 19.6% in 2020-21.
Reasons for Decline:
Private investment decline is attributed to low consumer spending, poor government policies and uncertainty.
