Human Capital Formation In India

Human Capital Formation In India Intoduction

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think of one factor that has made a great difference in the evolution of mankind. perhaps it is the human capacity to store and transmit knowledge which they have been doing through conversation, songs, and elaborate lectures.

but humans soon found out that we need a good deal of training and skill to do things efficiently. we know that the labor skill of an educated person is more than that of an uneducated person and hence the former is able ”write same text without changes in horizontal ”

Human Capital Formation In India

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to generate more income than the latter and his or her contribution to economic growth is, consequently, more. education is sought not only as it confers higher earning capacity on people but also for its other highly valued benefits: it gives one a better social standing and

pride; it enables one to make better choices in life; it provides knowledge to understand the changes taking place in society; it also stimulates innovations. moreover, the availability of an educated labor force facilitates the adaptation of new ‘

What is Human Capital?

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just as a country can turn physical resources like land into physical capital like factories, similarly, it can also turn human resources like nurses, farmers, teachers, and students into human capital like engineers and doctors.

societies need sufficient human capital in the first place—in the form of competent people who have themselves been educated and trained as professors and other professionals. in other words, we need good human capital to produce other human capital (say, nurses, farmers, teachers, doctors, engineers…).

this means that we need investment in human capital to produce more human capital out of human resources. let us understand a little more about what human capital means by posing the following questions : (i) what are the sources of human capital? (ii) is there any relation

between human capital and the economic growth of a country? (iii) is the formation of human capital linked to people’s all-round development or, as it is now called, human development? (iv) What role can the government play in human capital formation in India?

Sources of Human Capital

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investment in education is considered as one of the main sources of human capital. there are several other sources as well. investments in health, on-the-job training, migration, and information are the other sources of human capital formation.

why do your parents spend money on education? spending on education by individuals is similar to spending on capital goods by companies with the objective of increasing future profits over a period of time. likewise, individuals invest in education with the objective of increasing their future income.

Human Capital Formation In India

like education, health is also considered as an important input for the development of a nation as much as it is important for the development of an individual. who can work better —a sick person or a person with sound health?

a sick laborer without access to medical facilities is compelled to abstain from work and there is a loss of productivity. hence, expenditure on health is an important source of human capital formation.

Human Capital Formation In India Notes

  1. Education System: India has made significant strides in expanding its education system, with a focus on both quantity and quality. The government has implemented various initiatives such as the Sarva Shiksha Abhiyan (SSA) for universal elementary education and the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) for secondary education.
  2. Higher Education: India has a vast network of universities and higher education institutions. The Indian Institutes of Technology (IITs), Indian Institutes of Management (IIMs), and other prestigious institutions contribute to producing skilled professionals in fields like engineering, management, medicine, and technology.
  3. Skill Development: Recognizing the importance of vocational skills, the government has launched programs like Skill India Mission to provide training and certification in various trades and industries. This initiative aims to bridge the gap between the skills possessed by the workforce and the requirements of the industry.
  4. Labour Force: India has a large and diverse labor force. However, there are challenges related to skill mismatches, underemployment, and low productivity in certain sectors. Efforts to enhance the employability of the workforce are crucial for maximizing human capital potential.
  5. Healthcare: Health is an integral component of human capital formation. Investments in healthcare infrastructure, access to essential services, and public health initiatives contribute to improving the overall health status of the population, thereby enhancing their productivity and well-being.

Human Capital Formation In India Explanation

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the amount of money spent on preventive medicine (vaccination), curative medicine (medical intervention during illness), social medicine (spread of health literacy), and provision of clean drinking water and good sanitation are the various forms of health expenditures.

health expenditure directly increases the supply of a healthy labor force and is, thus, a source of human capital formation. firms spend on giving on-the-job training to their workers. this may take different forms: one, the workers may be trained in the firm itself under the

supervision of a skilled worker; two, the workers may be sent for off-campus training. in both these cases firms incur some expenses. firms will, thus, insist that the workers should work for a specific period of time, after their on-the-job training, during which it can recover the benefits of the enhanced productivity owing to the training.

expenditure regarding on-the-job training is a source of human capital formation as the return of such expenditure in the form of enhanced labor productivity is more than the cost of it. people migrate in search of jobs that fetch them higher salaries than what they may get in their native

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places. Unemployment is the reason for the rural-urban migration in India. Technically qualified persons, like engineers and doctors, migrate to other countries because of the higher salaries that they may get in such countries.

Migration in both these cases involves the cost of transport, higher cost of living in the migrated places, and psychic costs of living in a strange socio-cultural setup. The enhanced earnings in the new place outweigh the costs of migration; hence, expenditure on migration is also a source of human capital formation.

People spend to acquire information relating to the labor market and other markets like education and health. For example, people want to know the level of salaries associated with various types of jobs, whether the educational institutions provide the right type of employable skills, and at what cost.

This information is necessary to make decisions regarding investments in human capital as well as for the efficient utilization of the acquired human capital stock. Expenditure incurred for acquiring information relating to the labor market and other markets is also a source of human capital formation.

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the concept of physical capital is the base for conceptualizing human capital. there are some similarities between the two forms of capital; there are some striking dissimilarities as well. see box 4.1. human capital and economic growth: who contributes more to national income

a worker in a factory or a software professional? we know that the labour skill of an educated person is more than that of an uneducated person and that the former generates more income than the latter.

economic growth means the increase in the real national income of a country; naturally, the contribution of an educated person to economic growth is more than that of an illiterate person. if a healthy person could provide

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individual’s income-generating capacity. This enhanced productivity of human beings or human capital contributes substantially not only towards increasing labor productivity but also stimulates innovations and creates the ability to absorb new technologies.

Education provides knowledge to understand changes in society and scientific advancements, thus, facilitating inventions and innovations. Similarly, the availability of an educated labor force facilitates adaptation to new technologies. Empirical evidence to prove that an increase in human capital causes economic growth is rather nebulous. This may be because of measurement problems.

For example, education measured in terms of years of schooling, teacher-pupil ratio, and enrolment rates may not reflect the quality of education; health services measured in monetary terms, life expectancy, and mortality rates may not reflect the true health status of the people in a country.

Using the indicators mentioned above, an analysis of improvement in education and health sectors and growth in real per capita income in both developing and developed countries shows that there is convergence in the measures of human capital but no sign of convergence of per capita real income.

In other words, the human capital growth in developing countries has been faster but the growth of per capita real income has not been that fast. There are reasons to believe that the

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causality between human capital and economic growth flows in either direction. That is, higher income causes the building of a high level of human capital and vice versa, that is, a high level of human capital causes growth of income.

India recognized the importance of human capital in economic growth long ago. The Seventh Five-Year Plan says, “Human resources development (read human capital) has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population.

Trained and educated on sound lines, a large population can itself become an asset in accelerating economic growth and in ensuring social change in desired directions.” It is difficult to establish a relationship between cause and effect from the growth of human capital (education and health) to economic growth but we can see this in

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Table 4.1 that these sectors have grown simultaneously. Growth in each sector probably has reinforced the growth of every other sector. The National Education Policy 2020 states that the world is undergoing rapid changes in the knowledge landscape.

With various dramatic scientific and technological advances, such as the rise of big data, machine learning, and artificial intelligence, many unskilled jobs worldwide may be taken over by machines, while the need for a skilled

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workforce, particularly involving mathematics, computer science, and data science, in conjunction with multidisciplinary abilities across the sciences social sciences, and humanities, will be increasingly in greater demand. With climate change, increasing pollution, and depleting natural resources, there will be a sizeable shift in how we meet the world’s

energy, water, food, and sanitation needs, again resulting in the need for new skilled labor, particularly in biology, chemistry, physics, agriculture, climate science, and social science. The growing emergence of epidemics and pandemics will also call for collaborative research in

infectious disease management and development of vaccines and the resultant social issues heightens the need for multidisciplinary learning. There will be a growing demand for humanities and art, as India moves towards becoming a developed country as well as

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among the three largest economies in the world. This policy vision suggests how human capital formation in India will move its economy to a higher growth trajectory based on the knowledge landscape.

Human Capital and Human Development

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The two terms sound similar but there is a clear distinction between them. Human capital considers education and health as a means to increase labor 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 read and write and the ability to lead a long and

healthy life, they will be able to make other choices which they value. Human capital treats human beings as a means to an end; the end being the increase in productivity. In this view, any investment in education and health is unproductive if it does not enhance the output of goods and services. From the human development perspective,

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human beings are ends in themselves. Human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. Therefore, basic education and basic health are important in themselves, irrespective of their contribution to labor productivity.

In such a view, every individual has a right to get basic education and basic health care, that is, every individual has a right to be literate and lead a healthy life.

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In this section, we are going to analyze human capital formation in India. We have already learned that human capital formation is the outcome of investments in education, health, on-the-job training, migration, and information. Of these education and health are very important sources of human capital formation.

We know that India is a federal country with a union government, state governments, and local governments (Municipal Corporations, Municipalities, and Village Panchayats). 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 three tiers of the government. Analysis of the health sector is taken up in Chapter 8; hence, we will analyze only the education sector here. Do you know who takes care of

education and health in India? Before we take up the analysis of the education sector in India, we will look into the need for government intervention in the education and health sectors. We do understand that 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. Expenditures on education and health make substantial long-term impacts and they cannot be easily reversed; hence, government intervention is essential. For

Human Capital Formation In India Question and Answer

Question:1 What is the current data of human capital formation in India?

Answer: To understand the current data on human resource development in India, you need information from the government’s economic plans, economic studies, and other government sources. Until I have this expert information available, I cannot provide you with any current data on human resources. You can get this information from other sources and from government agencies.

Question:2 What is the process of capital formation in India?


Potential improvement: The initiation of the process of capital formation in a country depends on the potential and development of that country. Financial capital is more than responsible for returning a province’s medical capital to this development. Before this, the brother goes to the result, which way this process will lead in the country.

Involvement of Sources: The capital raising process involves two main sources: private sources and government sources. Private resources leaders determine spending on private accounts, responsible for increasing their own stock, and public resources are a composition of spending in procurement, service, and defense flowing through the government.

Investment Composition: The third process of capital adequacy is investment composition, using the investments identified above to reduce liability and broaden its alternative sources. This investment is defined as innovation, achievement in immediate results, and accurate results of capital gains and losses.

Question:3 What are the factors of human capital formation?


Training and Orientation: The number of learning and orientation in any society reflected in the system of teaching and orientation increases the flow of the entire situation.

Health facilities: Health facilities help improve people’s health and more human resources in health care. They provide family and community health facilities that increase the utilization and availability of health resources.

Marketing and Facilitation: Marketing and facilitation increase the flow of resources that increase human resource efficiency in the teaching and imparting of training, health, and technical competence.

Efforts to enhance social and security: Social and security-related actions by government schemes and organizations enhance human resources. These tools are used to improve innovation, information flow, and management efficiency.

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