Gross Domestic Product etc - 10

Gross Versus Net Value Added 

1.27 The discussion thus far has been centered on the economic activity of
the nation before any charges for consumption of fixed capital (CFC) or
depreciation are deducted. The aggregates include as part of the value of
current output, the value of capital services consumed in the production of
output. It is desirable to have accounts which show the output net of capital
consumption allowances. Thus the national income could be measured either
as on a gross basis or on a net basis. The difference between the two is that
in the gross estimates no deduction is made for CFC which takes place in the
process of production, whereas in the net measure such allowances are
made. Capital is one of the primary factors used in production and this results
in the CFC and hence, a reduction in the economic life of the capital. In other
words, the capital depreciates as a result of its use in the process of
production. The CFC measures the replacement value of the part of the
capital stock which has been used up in the production process during the year.
[Reproduced from CSO Publication]