Net investment
Also called: New capital formation · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"
Meaning
Net investment is the real addition to an economy's capital stock during a year. It is what remains of gross investment after allowing for wear and tear of existing capital. Net investment = Gross investment − Depreciation Depreciation (consumption of fixed capital) is a yearly allowance for expected wear and tear. It does not include unexpected destruction from accidents or natural calamities.
Example
Suppose a firm buys new machines worth ₹50 lakh in a year, and depreciation on its old machines is ₹20 lakh. Its net investment is ₹30 lakh. Only this ₹30 lakh adds to its capital stock.
Don't confuse with
- Financial "investment": buying shares, property or an insurance policy is not investment in economics. Investment means capital formation, that is, an addition to physical capital.
Related concepts
- Final goods
- Intermediate goods
- Consumer goods
- Consumer durables
- Capital goods
- Double counting
- Stock variable
- Flow variable
- Investment
- Gross investment