3699 Topper 21 101 503 546 7920 Human Capital Formation in India Up202007031943 1593785583 3146
3699 Topper 21 101 503 546 7920 Human Capital Formation in India Up202007031943 1593785583 3146
Human capital is intangible and built in the body and mind of its owner.
Whether a human being wants to raise earnings depends on inner conscience.
Cannot be sold, but only its services can be sold in the market.
Creates both private and social benefits.
Required to use physical capital more productively.
Need human capital to produce other human capital such as doctors, lawyers and engineers.
Investment on human beings helps to produce more human capital. It enables an increase in the work
participation rate and thus productivity. Major sources of human capital formation are as follows:
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
1. Expenditure on education Expenditure on educational investment enables one to develop
intellectual skills, earn higher income, make better choices
in life and provides knowledge to understand the changes taking
place in society to stimulate innovation.
It provides better social standing and pride.
It not only enables to have higher earning capacity but also helps
seek highly valued benefits.
Quality of human resources is determined by the level of
expenditure on education.
So, higher the educational expenditure, faster is the growth of
human capital formation for economic development of a
nation.
2. Expenditure on health The role of health in the development of human capital is vital.
To prevent the population from being a liability on a country, the
government must pay adequate attention towards the health
of the public.
This is possible only with government expenditure on health
infrastructure.
Educated people will spend on their child's health and education,
thus providing the nation with a bright future.
The level of income earned increases with the expenditure on
health because the productive capacity of the working
population depends on health expenditure.
Over the last few decades, India has developed health
infrastructure and manpower at all levels of government and
private health care centres.
This enables progress in improving the health of the
population.
3. On-the-job training
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
It states that investment in education and It states that human welfare should be
health is unproductive if it cannot increase increased through investment in education and
the output of goods and services. health though such investments cannot result in
higher labour productivity.
Government organisations incur huge investments to facilitate the functioning of schools and hospitals. As
the poor are unable to afford the high prices for obtaining these services from the private sector, the
government facilitates their availability at subsidised rates for the poor.
Indian Council for Medical Research (ICMR) implements rules and regulations related to
education in the health sector.
National Institute of Health and Family Welfare (NIHFW) is committed to provide public health,
family welfare and health management system more efficiently and effectively.
Increasing population
o An increase in the population has an adverse effect on the quality of human capital in
developing countries such as India.
o It leads to a reduction in per head availability of existing services such as employment,
education, health care, sanitation, housing, electricity, transport and nutrition.
Poverty
o People who live below the poverty line cannot afford basic education and healthcare facilities.
o Poverty is one of the main problems of human capital formation in India.
Migration
o Highly educated individuals migrate from one place to another for better employment
opportunities.
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
o Economic growth and development is negatively affected by this migration of highly skilled
labour.
Inappropriate planning
o Inappropriate planning of human resources in India is the major obstacle in human capital
formation.
o Supply of workforce does not match with growing demand.
o No effort to maintain the demand and supply of technical labour force and to raise the standard of
education.
o Increases the rate of unemployment in the country.
Low quality of health and education facilities
o Most health and education institutions provide poor health facilities and an inferior quality of
education.
o Negatively affects human capital formation.
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
Pattern of educational opportunities and attainment across states can be associated with the level of
government expenditure allocated in different states.
The percentage of government expenditure on education of the total government expenditure shows
the importance of education in government programmes.
In 2014–15, the per capita education expenditure was Rs 34,651 in Himachal Pradesh and Rs 4,088
in Bihar.
Allocation of educational expenditure in Himachal Pradesh differences in educational opportunities and
attainments was very high as compared to Bihar. This leads to differences in educational
opportunities and attainments across states.
Public and private institutions function in the health and education sectors. Functioning of these
institutions needs to be monitored by the different forms of government intervention because
Poor people cannot afford to have the health and education facilities provided by the private sector
because of high costs. So, the government needs to provide these services to the poor at lower
costs.
Health and education facilities provided by private institutions are mainly located in urban areas. It is
the responsibility of different governments to encourage private firms to provide health and
education services in rural areas.
Thus, government intervention is important to improve and maintain the education and health status
of a country.
Over the years, the adult and youth educational level has increased in India. However, the number of
illiterate people is high as the population was at the time of independence.
The educational system lacks vocationalisation of education as it provides a degree-oriented
certificate to youths.
A lack of gender parity and equality in education is often a critical factor in under development. A
difference in literacy rates between males and females still prevails in India.
The rural population has low access to education compared to the urban population.
Privatisation of education has increased the cost of education to the poor sections of society.
The government’s actual expenditure on education has been about 4–5% of GDP which is lower than
the committed spending on education (6% of GDP).
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
Mind Map
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ECONOMICS HUMAN CAPITAL FORMATION IN INDIA
Q1: Explain how investment in human capital plays a vital role in economic growth.
Ans: Investment in human capital plays a vital role in economic growth in the following ways:
Development of skills: It helps to develop skills and imparts training to increase
production.
Increase in productivity: Human resource plays the most crucial role, without which it is
not possible to innovate, use and upgrade physical capital for economic development.
Development in mental ability: It develops the ability to make right choices of the
available resources in the economy.
Modernisation: The education system focuses on increasing productivity of human
resources with technical progress at all levels of work. It increases the receptivity of
people to modern and scientific ideas.
Increase in standard of living: Higher expenditure on education increases the efficiency
of labour productivity as people become skilled in their jobs.
Increase in participation rate and equality: An individual with the capacity to obtain
knowledge and specialised skills enhances the productive efficiency and the rate of
participation of workers in economic, social and political activities.
Q3: How can we relate human capital formation with economic growth?
Ans: Human capital formation and economic growth are positively related to each other:
Economic growth refers to an increase in the real national income of a country.
A trained workforce can be an asset for the growth of an economy.
Human capital formation plays an essential role in innovation, usage and upgradation
of physical capital for economic growth.
An improvement in the stock of human capital helps in accelerating economic growth.
However, higher economic growth helps improve the process of human capital formation.
Thus, human capital formation and economic growth are dependent on each other.
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