Briefly explain the following basic concepts related to NI:
Consumption of Fixed Capital (Depreciation).

Consumption of Fixed Capital (Depreciation).
Fixed capital assets (like machinery, building) depreciate in value in the process of production. Simply put, depreciation means loss of the value of fixed capital assets during production. In other words, depreciation is the value of existing capital stock that has been consumed (used up) in the process of producing output.
Fall in value of fixed assets due to normal wear and tear, and expected obsolescence is called consumption of fixed capital. This is sometimes also called current replacement cost. The loss of value in capital goods is mainly due to two reasons: (i) normal wear and tear, and (ii) expected obsolescence. Let us understand how fixed capital goods depreciate in value.
(i)    Normal wear and tear. We know that during production process, capital goods like machines, tools, buildings, trucks, rail engines, roads, etc. wear out. In other words, production of goods and services involves wear and tear of fixed capital. It is a regular feature of fixed capital. You cannot use a machine forever. Its productive capacity goes on declining with normal use in production leading to fall in its value. This depreciation or fall in value due to normal wear and tear is called consumption of fixed capital.
(ii)    Expected obsolescence. Obsolescence is another reason for depreciation. Obsolescence refers to the loss of value of a fixed asset due to change in technology or due to change in demand for goods and services. Sometimes capital goods like machines become obsolete (disused) due to (a) change in technique of production, or (b) due to change in fashion resulting in fall in demand for goods and services which the machine produces. Take the case of steam engine of railways which is becoming obsolete due to introduction of diesel engine which, in turn, is giving place to electric engine. Thus fall in value of steam engine is due to expected obsolescence. This is called technological obsolescence. Similarly we have seen that demand for nylon cloth went down because it went out of fashion when terylene blends appeared in the market. Thus machine which was producing nylon cloth became obsolete (discarded) which led to fall in its value. Loss in value due to expected or foreseen obsolescence is called depreciation (in value) or consumption of fixed capital.
Significance (To distinguish between Gross and Net). In national accounting, gross variable (like gross income, gross profit, gross investment) are inclusive of depreciation (or consumption of fixed capital). When we deduct depreciation from gross value of output, we get net value of output. Therefore, depreciation is used to differentiate net from gross. Thus to find out net domestic capital formation, depreciation should be deducted from gross domestic capital formation. If we add depreciation to net, we get gross. In short, difference between gross and net is the value of depreciation. The following statements further clarify it.
Net product = Gross product - Depreciation
Gross value added = Net value added + Depreciation
Net domestic capital formation = Gross domestic capital formation - Depreciation