HUMAN CAPITAL FORMATION IN INDIA

The labour skill of an educated person is more than that of an uneducated person and hence the former is able to generate more income than the latter and his contribution to economic growth is, consequently, more. Economists have stressed the need for expanding educational opportunities in a nation as it accelerates the development process.

Human Capital 

Human Capital It refers to the stock of ‘skill and expertise’ of a nation at a point of time. It is the sum total of skill and expertise. Human Capital Formation is the process of adding to the stock of human capital over time. Physical Capital It refers to the stock of produced means of production. It consists of machines, production plants etc. Financial Capital It refers to the stocks/shares of the companies or these are simple financial claims against assets of the companies. 

Physical Capital 

● It is tangible 

● It is separable from its owners. 

● Mobility between the countries. 

● It depreciates over time due to constant use or due to change in technology.

● It creates only private benefit.  

Human Capital

● It is intangible.

● It cannot be separated from its owners.

● Its mobility is restricted by nationality and culture.

● It depreciates over time due to constant use or due to change in technology.

● It though depreciates with ageing but can be made up through continuous investment in education and health.

● It creates private benefit as well as social benefit. 

Sources of Human Capital 

1. Expenditure on Education: Investment in education is considered as one of the main sources of human capital. Individuals invest in education with the objective of increasing their future income.

2. Expenditure on Health: 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. Hence, expenditure on health is an important source of human capital formation. Preventive medicine (vaccination), curative medicine, social medicine and provision of clean drinking water and good sanitation are the various forms of health expenditures. Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation.

3. On job-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 labour productivity is more than the cost of it.

4. Migration: People migrate in search of jobs that fetch them higher salaries than what they may get in their native 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 higher salaries that they may get in such countries. Migration in both these cases involves 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.

5. Expenditure on Information: People spend to acquire information relating to the labour market and other markets like education and health. This information is necessary to make decisions regarding investments in human capital as well as for efficient utilization of the acquired human capital stock. Expenditure incurred for acquiring information relating to the labour market and other markets is also a source of human capital formation.

6. Study Programmes for Adults. 

Human Capital and Economic Growth 

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

2. If a healthy person could provide uninterrupted labour supply for a longer period of time, then health is also an important factor for economic growth

3. India recognized the importance of human capital in economic growth long ago. The Seventh Five Year Plan says, ‘Human resources development has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population’. The following points show clearly the interdependence among the two: 

• Higher Productivity of Physical Capital & Human capital increases productivity of physical capital as specialized and skilled workers can handle machines or techniques better than the unskilled workers. This increased productivity and hence production leads to economic growth.
• Innovative Skills Human capital facilitates innovation of new methods of production and this increases the rate of economic growth in the form of increase in GDP.
• Higher Rate of Participation and Equality Human capital formation leads to a higher employment rate. With increase in employment, productivity rises. Also, increase in employment opportunities also increases the level of income and this helps in reducing inequalities of wealth. Both, increase in employment rate and decrease in income inequalities are pointers of economic development.
• The process of human capital formation brings in a positive outlook to the society which is different from orthodox and traditional ways of thinking, and hence increases the rate of participation in the workforce causing an increase in level of production.

4. India as a Knowledge Economy:

The Indian software industry has been showing an Impressive record over the past decade. Entrepreneurs, bureaucrats and politicians are now advancing views about how India can transform itself into a knowledge-based economy by using Information Technology (IT). There have been some instances of villagers using e-mail which are cited as examples of such transformation. Likewise, e-governance is being projected as the way of the future. The value of IT depends greatly on the existing level of economic development. 

Human Capital and Human Development 

1. Human capital considers education and health as a means to 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 read and write and the ability to lead a long and healthy life, they will be able to make other choices which they value. In this view, any investment in education and health is unproductive if it does not enhance output of goods and services. In the human development perspective, human beings are ends in themselves.

2. 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 labour 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.

State of Human Capital Formation in India 

1. 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 government.

2. In India, the ministries of education at the union and state level, departments of education and various organizations like National Council of Educational Research and Training (NCERT), University Grants Commission (UGC) replaced it with a new Higher Education Commission of India(HECI) and All India Council of Technical Education (AICTE) facilitate institutions which come under the education sector.

3. Similarly, the ministries of health at the union and state level, departments of health and various organizations like Indian Council for MedicalResearch (ICMR) facilitate institutions which come under the health sector.

4. In a developing country like ours, where a large section of the population lives below the poverty line, many of us cannot afford to access basic education and health care facilities. Moreover, a substantial section of our people cannot afford to reach super specialty healthcare and higher education.

5. Furthermore, when basic education and health care is considered as a right of the citizens, then it is essential that the government should provide education and health services free of cost for the deserving citizens and those from the socially oppressed classes.

6. Both, the union and state governments, have been stepping up expenditures in the education sector over the years in order to fulfill the objective of attaining  100 percent literacy and considerably increase the average educational attainment of Indians.

Education Sector in India 

Education implies the process of teaching, training and learning especially in schools or colleges, to improve knowledge and develop skills. Objectives of education are:

•  It produces responsible citizens.
•  It develops science and technology.
• It facilitates use of natural and human resources of all regions of the country.
• It expands the mental horizon of the people. 

Growth in Government Expenditure on Education 

1. Government expenditure on education can be expressed in two ways

•  As a percentage of total government expenditure.
•  As a percentage of Gross Domestic Product (GDP).

 2. The percentage of ‘education expenditure of total government expenditure’ indicates the importance of education in the scheme of expenses before the government. Expenditure on education out of our GDP shows how much we are committed towards the development of education in our country.

3. During 1952-2010, education expenditure as a percentage of total government expenditure increased from. 7.92% to 11.1% and as a percentage of GDP increased from 0.64% to 3.25%. During this period expenditure on education was not constant. There was an irregular rise and fall. 

Expenditure on Elementary Education in India 

i). Elementary education takes a major share of total education expenditure and the share of the higher/tertiary education is the least. But expenditure per student on tertiary education is higher than that of elementary. 

ii). As we expand school education, we need more teachers who are trained in the higher educational institutions, therefore, expenditure on all levels of education should be increased. The per capita education expenditure is as high as Rs. 2005 in Himachal Pradesh to as low as Rs. 515 in Bihar. This leads to differences in educational opportunities across states. 

Free and Compulsory Education 

1. The Education Commission (1964-66) had recommended that at least 6% of GDP to be spent on education so as to make a noticeable rate of growth in education.

2. In December 2002, the Government of India, through the 86th Amendment of the Constitution of India, made free and compulsory education a fundamental right of all children in the age group of 6-14 years. Government of India in the year 1998 appointed Tapas Majumdar Committee, which estimated an expenditure of around 1.37 lakh crore over 10 years (1998-99 to 2006-07) to bring all Indian children in the age group of 6-14 years, under the purview of school education. Desired level of expenditure on education is 6% of GDP but the current level is little over 4% which is not inadequate. It is necessary to reach the level of 6% which is considered as must for the coming years. Recently, the Government of India has started levying a 2% ‘education cess’ on all Union taxes. The revenues from education cess has been earmarked for spending on elementary education.

Educational Achievements in India 

Generally, educational achievements in a country are indicated in terms of -

○ Adult literacy level

○ Primary education completion rate

○ Youth literacy rate 

Future Prospects 

Indian government considers education a key sector where considerable growth and development is required. Thus, it has set some future prospects for framing its policies.

Education for All : Still a Distant Dream

1. Although the education level in India has risen for both adults as well as for youth. Still the number of illiterates in India are as much as the population was at the time of Independence.

2. In 1950, when the Constitution of India was passed by the constituent assembly, it was noted in the directive principles of the constitution that the government should provide free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the constitution.

3. The following factors makes education still a distant dream:

• ○ Large number of illiterates
• ○ Inadequate vocationalisation
• ○ Gender bias
• ○ Low rural access level
• ○ Privatization
• ○ Low government expenditure on education 

Gender Equity : Better than Before 

1. The differences in literacy rates between males and females are narrowing, signifying a positive development in gender equity, still the need to promote education for women in India is imminent for various reasons, such as:

•  Improving economic independence.
•  Social status of women.
•  Healthcare of women and children. 

2.  Therefore, we cannot show the satisfaction about the upward movement in literacy rates as we have miles to go in achieving 100 percent adult literacy.

3. In India, Mizoram, Kerala, Goa and Delhi are the states having high literacy rate, while Bihar, Uttar Pradesh, Rajasthan and Arunachal Pradesh are the educationally backward states. The educational backwardness is due to social and economic poverty of the people. 

Higher Education : A Few Takers 

1. The Indian education pyramid is steep, indicating a lesser and lesser number of people reaching the higher education level.

2. As per NSSG (National Sample Survey Organization) data, in the year 2007-08, the rate of unemployment for youth with education up to secondary level and above was 18.1% whereas, the rate of unemployment for youth with education up to primary level was only 11.6%.

3. Therefore, the government should increase allocation for higher education and also improve the standard of higher education institutes, so that students are imparted employable skills in such institutions. 

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