Capital Formation is one of the important indicators for assessing the growth potential of an economy. For balanced regional development, estimates of gross capital formation, capital stock and consumption of fixed capital are very much required.
Gross Capital Formation (GCF) is measured by the total value of the gross fixed capital formation, and changes in inventories and acquisitions less disposals of valuables during the accounting period.
Gross Fixed Capital Formation (GFCF) is measured by the total value of a producer's acquisition less disposal of fixed assets during the accounting period plus certain additions to the value of non-produced assets realized by the productive activity of institutional units.
Estimation of Capital formation at State level
Estimates of capital formation can be prepared by following any of the three approaches:
a) Production or Commodity Flow Approach
b) Saving and Flow of Funds Approach
c) Expenditure Approach
At national level, all the three approaches are currently adopted by CSO. The Regional Advisory Committee has recommended that instead of GCF, States should compile the estimates of GFCF only, as the estimation of change in stock is not conceptually viable or feasible at the state level due to open boundaries of the states. Moreover, the estimates of change in stock are subject to higher fluctuations. Thus, it was felt that at the state level, GFCF would be a better indicator of capital formation. For measurement of GFCF at state level, only expenditure approach can be adopted as the other two methods require data on imports and exports of capital goods across the state boundaries and net inflow of resources from outside the state are not available.
Methodology adopted by DES, Odisha
Gross Capital Formation can be broadly classified in to Gross Fixed Capital Formation (GFCF) & change in stock of raw materials, semi-finished goods & finished goods. The estimate of GFCF refers to both Public & Private sectors. Due to paucity of data relating to private sector the estimate of GFCF at present is confined to public sector only at current price by i) Industry of use ii) Type of Institution& iii)Type of Assets.
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