Gross investment vs Net investment

A production unit possesses some fixed capital. This fixed capital is in the form of machines, tools, factory building etc. When this fixed capital is used in production, some wear and tear take place during the year. Some accidental damage mat also take place. All these reduce the value of fixed capital. The value of fixed capital may also go down due to obsolescence. Obsolescence means loss of value of fixed capital due to change in technique of production or due to change in demand for goods that it produces. These changes make the fixed capital, like machine, obsolete. For example, steam engines became obsolete when diesel engines began to be used and diesel engines became obsolete when electric engines were introduced. Changed in fashion is another example that makes the machines obsolete.
The loss of value of fixed capital due to wear and tear in use and due to expected obsolescence is called depreciation or consumption of fixed capital.
If we subtract this depreciation or consumption of fixed capital from gross investment, we get net investment. So,
NET INVESTMENT= GROSS INVESTMENT - DEPRECIATION