HUMAN CAPITAL

FORMATION
CONTENTS
 Introduction
 Sources of human capital
 Human capital and economic growth
 Human capital and human development
 State of human capital formation
 Education sector
 Future prospects
 Conclusion
“…the wisdom of expending public and private funds on education is not to be
measured by its direct fruits alone. It will be profitable as a mere investment to
give the masses of people much greater opportunities than they can generally
avail themselves of. For by this means many who have died unknown, are
enabled to get the start needed for bringing out their latent abilities”.
ALFRED MARSHALL.
The labour skill of an educated person is more than that of an un educated
person. So the former is able to generate more income than the latter and his
contribution to economic growth is more.
For e.g. an educated farmer having equal size of land as an uneducated farmer
earns more yield more crop through use modern technology.
This ,in turn, contributes to national income more than the latter. So,
economists have stressed the need for expanding educational opportunities in
a nation as it accelerates the development process.
 SOURCES OF HUMAN CAPITAL
 Spending on EDUCATION is similar to spending on capital goods by company
with objectives of increasing future profits over a period of time. Likewise ,
individuals invest in education with the objective of increasing their future income.
 Like education, HEALTH is also considered as an important input for the
development of an individual. For e.g. a sick person cannot work better than the
person with sound health. Hence expenditure on the health is also a source of
human capital formation.
 Spending on the DEVELOPMENT OF THE WORKERS of an institution is also a
source of human capital formation. For e.g. spending on on-the-job-training, off-
campus training improves the technological knowledge of the workers. Thus
become a source of human capital formation.
 People who migrate in search of better jobs, spend the money in the process of
MIGRATION to urban areas. It leads to the better contribution of the person to the
GDP. Thus investing in the migration is also a source of human capital formation.
 People spend to acquire INFORMATION relating to labour market and other
markets. This information is necessary to make decisions regarding investments in
human capital as well as for efficient use of human capital stock.
 Enhanced productivity of human beings or human capital contributes
substantially not only towards increasing labour productivity but also stimulates
innovations and creates ability to absorb new technologies.
 Causality between human capital and economic growth flows in either
directions. That is , higher income causes building of high level of human
capital and vice versa.
 India recognized the importance of human capital in economic growth long
ago. The 7th five year plan says “human resources development has
necessarily to be assigned a key role in any development strategy.
 Analysis of improvement in education a health sectors and growth in per
capita income In both developing and developed countries shows that there is
convergence in the measures of the human capital but no sign of convergence
of per capita real income.
 Empirical evidence to prove that increase in human capital causes economic
growth is rather nebulous. This may be because of measurement problems.
For e.g., education measured in terms of years of schooling , teacher-pupil ratio
and enrollment rates may not reflect the quality of education.
 The two terms sound similar but there is a clear distinction
between them human capital considers education and health as
a means t increase labour productivity. Human development is
based on the idea that education and health are integral to
human well-being because only when people have the ability to
lead a long and healthy life , they will be able to make other
choices which they value.
 Human welfare should be increased through investments in
education and health even if such investments don’t result in
higher labour productivity. There fore basic education and basic
health are important in themselves.
 Every individual has a right to be a literate and lead a healthy
life.
o The constitution of India mentions the functions to be carried out by each
level of government. Accordingly , expenditures on both education and health
are to be carried out simultaneously by all the three tiers of the govt.
o Education and health care services create both private and social benefits
and this is the reason for the existence of both private and public institutions in
the education and health service markets.
o In India the ministers of education at the union and state level, dept. of
education and various organizations like NCERT , UGC , and AICTE facilitate
institutions which come under the education sector. Similarly , the ministries of
health at the union and the state level , dept. of health and various
organizations like ICMR facilitate institutions which come under the health
sector.
o The union and state govt. , have been stepping up expenditures in the
education sector over the years in order to fulfill the objective of attaining cent
% literacy and considerably increase educational attainment of Indians
 The % of expenditure of total govt. expenditure indicates the importance of
education in the scheme of things before govt.. The % of education expenditure of
GDP expresses how much of our income is being committed to the development of
education in the country .
The per capita education expenditure differs across states from as high as Rs.3,440
in Lakshwadweep to as low as Rs. 386 in Bihar . This leads to differences in the
educational opportunities and attainments across the states.
The education commission (1964-1966) had recommended that at least 6% of GDP
be spent on education so as to make a noticeable rate of growth in educational
achievements.
Steps taken by govt. for the improvement of education in the India
1. Act was passed through parliament i.e. it added right to free and compulsory
education to all children of age group 6-14.
2. A goal of 6 % needs to be achieved – this has been taken as a must for coming
years .
3. Government recently stated a 2% tax as “education cess” on all union taxes .
• EDUCATION FOR ALL
1. Though the literacy rates in India have increased , still the absolute number of
illiterates in India is as much as population of India at the time of independence.
2. It was noted in the directive principles of the constitution that the govt. should provide
free education for all the children up to the age of 14 yrs.
• GENDER EQUALITY
1. the narrowing difference between literacy rate between both genders indicates
positive development in gender equality.
2. But we still need to improve the literacy rate of the women because to improve the
economic independence and social status of women also to make positive impact on
fertility rate and health care of children.
• HIGHER EDUCATION
1. The people reaching higher studies in India are less due to many reasons. Moreover
the level of unemployment is high among the youth.
2. Therefore, the govt. should increase allocation for higher studies and also improve
standard for higher education institutions.
The economic social benefits of human capital
formation and human development are well known.
The spread of education and health services across
different sectors of society should be ensured so as
to simultaneously attain economic growth and
equity . India has rich stock of scientific and
technical man power in the world . The need of the
hour is to better it qualitatively and provide such
conditions so that they are utilised in our own
PRESENTED BY
[Link]
[Link] Kumar
Joes john
Vinay Kumar