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Human capital formation is a critical driver of economic growth and social development in India. This chapter explores how investments in education, health, on-the-job training, migration, and information transform human resources into human capital, contributing to higher productivity and national development. These notes summarise key concepts from Chapter 4 of the NCERT textbook Indian Economic Development for effective revision. You can also download the free PDF for quick reference.
Contents
- 1 Introduction
- 2 What is Human Capital?
- 3 Sources of Human Capital
- 4 Human Capital and Economic Growth
- 5 Human Capital and Human Development
- 6 State of Human Capital Formation in India
- 7 Growth in Government Expenditure on Education
- 8 Educational Achievements in India
- 9 Conclusion
- 10 Important Definitions in NCERT Notes Class 11 Indian Economic Development Chapter 4: Human Capital Formation in India
- 11 FAQs
Explore Notes of Class 11: Indian Economic Development
Introduction
Human capital refers to the skills, knowledge, and health that individuals acquire through investments in education, health, and training, enabling them to contribute more effectively to economic growth. Unlike physical capital (e.g., factories), human capital is developed by transforming human resources (e.g., nurses, farmers) into skilled professionals (e.g., doctors, engineers). Education and health are pivotal, as they enhance earning capacity, social standing, innovation, and the ability to adapt to new technologies. Economists emphasise expanding educational opportunities to accelerate national development.
What is Human Capital?
Human capital is the stock of skills, knowledge, and health that enhances an individual’s productivity and economic contribution. Just as physical resources like land are converted into physical capital, human resources are transformed into human capital through investments. Key questions addressed in this chapter include:
- What are the sources of human capital?
- How does human capital contribute to economic growth?
- Is human capital formation linked to human development?
- What is the government’s role in human capital formation in India?
Sources of Human Capital
Human capital formation results from investments in various areas:
- Education: Considered the primary source, education increases future income by enhancing skills. Individuals invest in education to improve earning capacity, similar to firms investing in capital goods for profit.
- Health: A healthy workforce is more productive. Expenditures on preventive medicine (e.g., vaccinations), curative medicine, social medicine (health literacy), clean water, and sanitation contribute to a healthy labour force, reducing productivity losses due to illness.
- On-the-Job Training: Firms invest in training workers, either in-house or through off-campus programs, to enhance productivity. This expenditure is recouped through higher output, making it a source of human capital.
- Migration: People migrate for better job opportunities, incurring costs like transport, higher living expenses, and psychological adjustments. Higher earnings in new locations outweigh these costs, contributing to human capital formation.
- Information: Expenditure on acquiring information about labour markets, educational institutions, or health services helps individuals make informed decisions, enhancing the efficient use of human capital.
Similarities and Differences with Physical Capital: Like physical capital, human capital requires investment and yields returns over time. However, human capital is intangible, embodied in individuals, and cannot be sold or separated from the person.
Human Capital and Economic Growth
Human capital significantly contributes to economic growth by:
- Increasing Productivity: Educated and healthy individuals generate more income than uneducated or unhealthy ones, contributing to higher national income.
- Stimulating Innovation: Education fosters knowledge and understanding of societal and technological changes, facilitating inventions and innovations.
- Adapting to New Technologies: An educated labour force can adopt and implement new technologies effectively.
Empirical evidence on the link between human capital and economic growth is unclear due to measurement issues (e.g., years of schooling may not reflect quality). However, data show faster human capital growth in developing countries, though per capita income growth lags. The relationship is bidirectional: higher income enables more investment in human capital, and better human capital drives income growth. India’s Seventh Five-Year Plan emphasised human capital’s role in economic growth, viewing a trained population as an asset. The National Education Policy (NEP) 2020 highlights the need for skilled labour in fields like data science, climate science, and humanities to meet global demands and drive India toward becoming a developed economy.
Human Capital and Human Development
To move forward with this chapter, you must understand human capital and human development. Look at the definitions of these concepts below:
- Human Capital: Views education and health as means to increase labour productivity and economic output. Investments are justified only if they enhance productivity.
- Human Development: Considers education and health as ends in themselves, integral to human well-being. Basic education and health are fundamental rights, regardless of their economic impact, enabling individuals to lead fulfilling lives and make valued choices.
The distinction lies in purpose: human capital focuses on economic productivity, while human development prioritises human welfare and equity.
State of Human Capital Formation in India
Human capital formation in India relies on investments in education, health, training, migration, and information, with education and health being the most critical. India’s federal structure assigns responsibilities to the union, state, and local governments, with expenditures on education and health managed across all levels. Government intervention is essential because:
- Private and Social Benefits: Education and health generate both individual and societal benefits, necessitating public and private institutions.
- Long-term Impact: Expenditures on these sectors have lasting effects, and poor-quality services cause irreversible damage.
- Market Failures: Individual consumers lack full information about service quality and costs, leading to potential exploitation by private providers. The government ensures standards and fair pricing.
Key institutions include:
- Education: Managed by the union and state ministries, NCERT, UGC, and AICTE.
- Health: Overseen by health ministries, the National Medical Commission, and ICMR.
In a developing country like India, where many live below the poverty line, access to basic education and health is limited. The government must provide these services free to deserving and socially oppressed groups to ensure equity and fulfil constitutional obligations.
Also Read: NCERT CBSE Class 10 Economics Chapter 4 Notes
Growth in Government Expenditure on Education
Government spending on education is measured as:
- Percentage of Total Government Expenditure: Reflects the priority given to education. It increased from 7.92% in 1952 to 16.54% in 2020.
- Percentage of GDP: Indicates the share of national income allocated to education. It rose from 0.64% in 1952 to 4.47% in 2020, though growth has been uneven.
Elementary education receives the largest share of education expenditure, followed by secondary and tertiary education. However, per-student expenditure is highest in tertiary education. Expanding school education requires more trained teachers, necessitating investment in higher education. Per capita public expenditure on elementary education varies significantly across states (e.g., Rs 96,968 in Sikkim to Rs 10,710 in Bihar in 2020-21), leading to disparities in educational opportunities.
The Education Commission (1964–66) recommended spending 6% of GDP on education, a target reiterated by the Tapas Majumdar Committee (1999), which estimated Rs 1.37 lakh crore needed over 1998–2007 to universalise school education for ages 6–14. Current spending (4.47% of GDP) falls short of this goal. The Right of Children to Free and Compulsory Education Act (2009) made free education a fundamental right for ages 6–14, supported by a 2% education cess on union taxes and schemes for higher education.
Educational Achievements in India
Key indicators include:
- Adult Literacy Rate: Has increased over the last two decades, but the absolute number of illiterates remains high, equivalent to India’s population at independence.
- Primary Education Completion Rate: Shows improvement, but gaps persist.
- Youth Literacy Rate: Has risen, indicating progress in educational access.
Future Prospects
- Education for All: Despite progress, achieving 100% literacy remains a distant goal. The Constitution’s Directive Principles aimed for universal education by 1960, but this has not been realised.
- Gender Equity: Literacy gaps between males and females are narrowing, reflecting improved gender equity. However, promoting women’s education is crucial for economic independence, social status, lower fertility rates, and better health outcomes for women and children.
- Higher Education: India’s education pyramid is steep, with fewer people accessing higher education. Unemployment among educated youth is high (e.g., 19% for rural male graduates, 30% for rural female graduates in 2011–12, with slight improvement by 2022–23). The government must increase funding and improve the quality of higher education to impart employable skills.
Conclusion
Human capital formation through investments in education, health, and training yields significant economic and social benefits. India has increased spending on education and health, but disparities in access and quality persist. Ensuring equitable distribution of these services is essential for economic growth and social equity. India’s rich scientific and technical manpower must be qualitatively improved and retained to drive development.
Important Definitions in NCERT Notes Class 11 Indian Economic Development Chapter 4: Human Capital Formation in India
This section lists key terms for clarity and revision:
- Human Capital: The stock of skills, knowledge, and health acquired through investments in education, health, training, migration, and information, enhancing productivity and economic contribution.
- Human Development: The perspective that views education and health as integral to human well-being, emphasising their role as fundamental rights rather than just means to productivity.
- Education Expenditure: Government spending on education, expressed as a percentage of total government expenditure or GDP, reflecting its priority and national income allocation.
- Right of Children to Free and Compulsory Education Act (2009): Legislation making free education a fundamental right for children aged 6–14 years.
- Education Cess: A 2% tax on union taxes to fund elementary education.
- National Education Policy (NEP) 2020: A policy emphasising the need for skilled labour in emerging fields like data science, climate science, and humanities to drive economic growth.
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FAQs
Human capital is the stock of skills, knowledge, and health that enhances productivity. It is formed through investments in education, health, on-the-job training, migration, and information.
Human capital increases labour productivity, stimulates innovation, and facilitates the adoption of new technologies, contributing to higher national income.
Human capital focuses on education and health as means to increase productivity, while human development views them as ends, essential for human well-being and rights.
Government intervention ensures quality, affordability, and equity in education and health services, addressing market failures and supporting citizens who cannot afford these services.
Challenges include inadequate expenditure (below the recommended 6% of GDP), disparities across states, high illiteracy, unemployment among educated youth, and limited access to higher education.
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