Chapter 4: Human Capital Formation in India

Two major sources of human capital in a country are

1. Health: Health is one of the most important sources of human capital. Healthy individuals can contribute to human capital formation by being more active and energetic.

2. Education: Education plays an important role in human capital formation; an educated individual will be better equipped to learn modern technology and increase the overall productivity of the nation.

Some of the indicators of educational achievement in a country are as follows:

1. Primary Education Completion Rate: This rate shows the percentage of students who have completed their last year of primary education. It includes students who studied in Classes 1 to 8 and are between the age group 6 to 14 years. It has been shown that a lower primary education completion rate is instrumental in a lower youth literacy rate and, correspondingly lower adult literacy rate.

2. Youth Literacy Rate: This highlights the rate of literate people between the ages of 15-24 who are able to read and write. As the youth are the pillar of a nation, the more this segment is educated, the more will be the development of the nation.

3. Adult Literacy Rate: It refers to all the literate population who are more than 15 years of age. It is expressed as a percentage, and the higher the literacy rate, more the employment opportunities. This category is very important as a literate population will be better equipped to perform many tasks. It is an important indicator that indicates the number of people who can actively participate in economic development activity.

In India, there are many religions, cultures and communities. Each state of India is different from the other one, and therefore, regional differences exist, which cause hindrances in attaining education in our country. We see that some regions lack the proper facilities required to sustain education, while in some states, there are very high literacy rates. People in less educated states are mostly involved in agriculture or any other informal sector, and hence do not value education that much. It is also due to the low standard of living and poverty that people prefer not to educate children and make them involved in informal sectors. This explains the regional difference that is prevalent in India in the case of education.

Human Capital

1. Human capital takes into account health and education as a source of increasing labour productivity.

2. Human capital is a comparatively narrow concept that treats human beings as a medium to generate high productivity. As per this concept, investing in education and health is said to be unproductive if it does not result in enhancing output.

Human Development

1. This concept is based on the idea that health and education are integral parts of human well-being.

2. This is a broader concept that believes that development is said to have happened when the majority of people in a country are healthy and educated.

Human development deals with the development of individuals by getting a good education and living in a healthy way. Human development is said to have occurred when most of the people of a country or economy are healthy and educated, whereas, in the case of human capital, the focus is on health and education as a medium to make the person a better individual in terms of productivity. Human capital focuses on human beings and their productivity, while human development is focused on prosperity that results from health and education. Therefore, human development is a broader concept than human capital.

The following factors contribute to human capital formation:

1. Expenditure on education: Education elevates social status. It also enables an individual to enhance productivity and gain the ability to learn new technologies. An educated population helps in raising the economy of a nation to good heights.

2. Expenditure on health: Expenditure on health increases productivity, efficiency and efficacy of the population. A healthy person will be able to function more productively and will be considered an asset to the nation.

3. On-job-training: Training helps in acquiring a skill in a better way and is one of the most efficient methods to increase productivity. Training sets the ground for further learning and helps one become skilled.

4. Migration: Migration refers to the mass movement of people from underdeveloped or developing nations to countries which are developed. It helps to utilise the skills of the individual and helps in perfecting them. These skills can be transferred to an underdeveloped country, which will help in the growth of a nation.

5. Information: Information related to the extent of availability of admissions, jobs and salaries play a vital role in determining human capital. Proper information helps attract the best students as per their field of interest; in the same way, the availability of medical information helps keep one safe. Therefore, spreading information is critical for the effectiveness of human capital.

Government organisations are essential for maintaining the system of education in India by availing education facilities available. Education and health sectors have long gestation periods, and for such sectors, funding and intervention of government are required in order to make facilities available for the masses and, thereby, help the weaker sections of society to gain access to better education and healthcare. In India, the following organisations facilitate the functioning of schools and hospitals.

1. The NCERT, which stands for National Council of Education Research and Training, is the organisation that creates curricula for the students of classes up to 12 in India.

2. The UGC, or University Grants Commission, is the prime authority in issuing university statuses to educational institutions.

3. The AICTE, or All India Council for Technical Education, is the apex body for technical education in India.

4. The National Institute of Health and Family Welfare is responsible for promoting family welfare and health programmes across the country.

5. The ICMR, or India Council for Medical Research, is the body which regulates research and education in the health sector.

The development of a country is very much dependent on the level of education of the people residing in it. These points show the importance of education for a nation:

1. Educated population will be much more productive with skills and quality that can be utilised to earn sufficient income and develop human capital.

2. Education helps people to make a decision rationally. It helps in building society and developing good citizens.

3. An educated population will be having a greater acceptance of modernisation and will be adopting newer techniques. It helps in the growth of the economy.

4. Educated population will have a common level of income, and hence, the income distribution will not be skewed.

5. Education provides the ability to generate income which results in an improvement in quality of life and living standards.

Solution coming soon.

Information related to the availability of jobs, salaries and admissions is important in determining human capital. Such information helps people make better decisions that will suit their knowledge and skills. The investment made in health helps to improve people’s well-being, life expectancy, efficiency and quality of life. Use of medical information results in a healthy workforce. The lack of information in these is minimised, which helps in the effective utilisation of the available human resources.