Chapter 5: Human Capital Formation in India

Question 1. What are the two major sources of human capital in a country?

Answer. Human capital refers to the Stock of skill and, expertise of a nation at a point of time.
The two major sources of human capital in a country are (i) Investment in education (ii)
Investment in health Education and health are considered an important input for the development
of a nation.

Question 2. What are the indicators of educational achievement in a country?

Answer. Educational attainment of a country can be measured in terms of indicator like adult
literacy level, enrolment in schools, years of schooling and teacher-pupil ratio. These indicators give
an idea of spread of education but may not reflect the quality of education in a country. Quality of
education may be indicated by nature of employment, research and social values in a country.

Question 3. Why do we observe regional differences in educational attainment in India?

Answer. India is a land of diverse cultures, religions and communities. Every region has its own
customs and traditions. Also, as we go from one state to another, we find many differences in terms
of language, habit, culture, need, climate etc. Due to these differences there exist regional differences
in the educational attainment in our country. Some regions lack educational facilities where as some
regions give undue importance to education. Regional differences in educational attainment in India
can be due to
(i) Regional Inequality in incomes and
(ii) Disparities in expenditure by government on development of educational facilities.
Question 4. Bring out the differences between human capital and human development.
Answer. Difference between Human Capital and Human Development

Human Capital Human Development

1 Human capital refers to the stock of a 1 Human development refers to holistic
nation’s human skills and expertise at a development and well being of a nation’s
particular point of time. human capital.
2 Human capital considers education and 2 Human development considers human
health as a means (skills and expertise) to beings as end in itself.
enhance productive capacity.
3 Human capital focuses on the investment in 3 Human development focuses on
education and health sector to increase investment in education and health sector
productivity and efficiency of workforce. to increase the general well-being,
standard and quality of living of human
capital.
4 Human capital is a narrow concept 4 Human development is a broader concept
5 If investment fails to increase the efficiency 5 Human development advocates in favour
and income earning capacity, then human of such investments even though these
capital regards the investment to be had failed to bring out higher productivity
unproductive. and efficiency. Human development
protects every individual’s right to get
education and lead a healthy life.
Question 5. How is human development a broader term as compared to human capital?
Answer.

1. Human capital is a narrow concept which treats human beings as a means to achieve an end
which is higher productivity, failing which the investment is not considered to be productive.
2. Human development is a broader concept which considers human beings as ends in
themselves.

Human welfare can be achieved through investments in education and health. It considers
welfare—a right of every individual irrespective of their contribution to labour productivity.
Every individual has right to be literate and lead a healthy life.

Question 6. What factors contribute to human capital formation?

Answer. Factors that contribute to human capital formation are as follows:

(i) Education: Education not only raises the standard and quality of living but also encourages
modern attitudes of people. Moreover, education increases the productive capacity and productivity
of a nation’s workforce by honing their skills. Further, education increases the acceptability of the
modern techniques and also facilitates a primitive economy to break the shackles of tradition and
backwardness. An investment m educational sector has twofold benefits.

It not only increases the income earning capacity but also reduces the skewed distribution of
income, thereby forming an egalitarian society.

(ii) Health: There is a saying "The greatest wealth is health.” The wealth of the country can be
increased with the efforts of healthy workforce. Investment in health sector increases, efficiency and
productivity of a nation’s workforce. In contrast to an unhealthy person, a healthy person can work
better with more efficiency and consequently, can contribute relatively more to the GDP of a country.
Good health and medical facilities mot only increase the life expectancy but also improve quality and
standard of living. Investing in health sector ensures the perennial quality
and standard of living.

(iii) On-the-job training: Training refers to the act of acquiring skills, knowledge and
competency required to perform a particular job efficiently and effectively. On-the-job training is
the most effective kind of framing to a trainee, imparting him with the technical skills and know-
how at the actual work site. In this type of training, a trainee is assisted and trained by a trainer
when the trainee is actually doing the job. This helps the trainee not only to acquire the theoretical
and practical skills simultaneously but also enables him to learn from the experiences of his trainer
and thereby can increase his efficiency and productivity.

(iv) Migration: Migration refers to the movement of people from underdeveloped or developing
countries to developed countries in search of better avenues. Migrations contribute to human capital
formation as it facilitates the utilization of inactive or underdeveloped skills of an individual. The
cost of migration involves cost of transportation and cost of living at the migrated places. Usually,
the cost of migrating is very high due to the high cost of transportation and high cost of livelihood
in the developed countries. But still, people migrate in search of better job opportunities. And
handsome salaries. Migration of human capital helps the underdeveloped countries to acquire
technical skills, efforts reducing methods and efficient way of performing tasks.
(v) Information: Information relating to the labour market and other markets is also a factor which
contributes to human capital formation. Information relating to the level of salaries in various types
of jobs, whether the educational institutions provide required skill and what is associated cost is
necessary to make decisions regarding investment in human capital as well as for efficient utilisation
of the acquired human capital stock information is necessary to make decisions regarding
investment in human capital.
Question 7. Mention two government organisations each that regulate the health and
education sectors.
Answer. In India, the ministries of education at the Centre and State level, departments of
education and various organisations such as National Council of Educational Research and
Training (NCERT), University Grants Commission (UGC) and All India Council of Technical
Education (AICTE) regulate the education sector.

Similarly, the ministries of health at the Union and State level, departments of health and
various organisations like Indian Council for Medical Research (ICMR) regulate the health
sector.

Question 8. Education is considered an important input for the development of a nation.

How?
Or
Examine the role of education in the economic development of a nation.

Answer. Education plays an important role in the economic development of a nation in the following
ways:

Development of skills: Education plays an important role in improving skills which are required
to enhance the productivity level. It helps develop skills and impart training to increase production.
It facilitates the use of innovative ideas and ability to adapt to changes in science and technology.
Thus, the use of skilled workers in production paved the way towards sustainable economic
development.

Increase in productivity: Physical capital such as buildings, equipment and machinery are
important for increasing the quality and quantity of production. However, using these resources
effectively is more important for the rise in productivity and capital value. Human resource plays
the most crucial role and without which it is not possible to innovate, use and upgrade physical
capital for economic development. Educational investment provides higher quality of human
resources to increase the level of production.

Development in mental ability: Decision-making ability and mental abilities of an individual are
developed through continuous investment in education. It develops the ability to make right choices
of the available resources in the economy. This leads to efficient use of resources resulting in higher
productivity. Thus, education prepares individuals as human resources for a nation.

Modernisation: The education system focuses on increasing productivity of human resources with
technical progress at all levels of work. It increases the receptivity of people to modern and scientific
ideas. Since independence, the number of technical and professional educational institutions
increased to a great extent. Thus, the use of advanced technology in the production process becomes
easier with suitable educational system.
Increase in the standard of living: Higher expenditure on education increases the efficiency of
the labour productivity as they become skilled in their jobs. An educated person possesses higher
productivity and efficiency and therefore has a relatively higher income earning capacity. The higher
income and greater access to modern techniques with rise in the education level raises the standard
of living and quality of life in the nation.

Increase in participation rate and equality: An individual with the capacity to obtain knowledge
and specialised skills provides higher employment opportunities. This enhances the productive
efficiency and the rate of participation of workers in economic, social and political activities. This
high rate of participation implies the high degree of economic and social equality in a nation.

Question 9. Discuss the following ‘as a sources of human capital formation

(a) Health infrastructure
(b) Expenditure on migration.
Answer.

1. Health Infrastructure. Health is another important source of human capital formation.

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 expenditure. Health expenditure directly increases
the supply of healthy labour force and is, thus, a source of human capital formation.

2. Migration. People sometimes migrate from one place to the other in search of better job. It
includes migration of people from rural areas to urban areas in India and migration of
technical personnel from India to other countries of the world. 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 set-up. The enhanced earnings in the new place outweigh the
costs of migration. Expenditure on migration is also a source of capital formation.

Question 10. Establish the need for acquiring information relating to health and
education expenditure for the effective utilisation of human resources.

Answer. The information about availability of jobs, salaries and admissions related information
plays an important role in the determination of human capital. The availability of jobs and admission
related information not only help the students to opt for the best choice according to their interest
areas but also leads to the effective utilisation of human skills and knowledge.

Also, investment made on health information improves health, efficiency, quality of living and life
expectancy of people.

The expenditure incurred on the availability of medical information and family welfare programmes
ensures the supply of healthy workforce. Various health measures are not adopted due to lack of
information can be minimised and helps in effective utilisation of human resources. The
acceptability and the use of medical information and family welfare programmes are often
obstructed by lack of its publicity and promotion. Often people are reluctant to opt for various health
measures due to lack of complete knowledge and information.
For example, few years back, people knew very little about polio and about its vaccination. But due
to the constant efforts by various govt and non-govt organisations under the Pulse Polio
Immunisation Program, people are now well aware of polio. Therefore, it is due to the continuous
publicity and various awareness campaigns, this program has gained public consciousness.

Thus, the expenditure on the spread of information (of education and health) determines the
effectiveness and efficacy of human capital.

Question 11. How does investment in human capital contribute to growth?

Answer. Human capital and economic growth go hand- in-hand. Human capital formation
accelerates the economic growth whereas economic growth in turn facilitates human capital
formation. The interrelationship between economic growth and human capital formation can be
explained as follows.

(i) Increases the productivity of physical capital:

Physical capital refers to the stock of produced means of production. It consists of production
plants, machines, tools and equipment. The skilled workers handle the productive assets in such a
manner that these not only enhance their productivity but also lead to an efficient utilization of
the physical capital. When the productivity increases, the pace of growth is automatically
accelerated.

(ii) Innovation of skills: An educative person is more productive and skilful. He has the-
potential to develop new skills and innovate new techniques that can be more efficient and
productive. Greater the number of skilled and trained personnel, greater will be probabilities of
innovations.

(iii) High participation rate and equality: Human capital endowed with higher technical skills
and innovating power is more productive and efficient. This increases the participation of more
people in the process of economic growth and development. Higher the participation rate, higher is
the degree of social and economic equality.

Thus, we can conclude that human capital and economic growth goes hand-in-hand. Human
capital formation accelerates the economic growth whereas economic growth also facilitates
human capital formation.

Question 12. ‘There is a downward trend in inequality world-wide with a rise in the
average education levels. Comment.

Answer. This is rightly said that there is downward trend in inequality worldwide with a rise in the
average education levels because:

(i) Education gives confidence among the masses to perform any work

(ii) It enables the person to work for a longer period.

(iii) It helps in improving the productivity and the morale of the worker.

(iv) It facilitates the person to differentiate between better and best education and paves the way
for healthy and educated generation for the future which in turn leads to economic development.
(v) It helps in increasing standard of living of people, thereby, helps in increasing real per capita
income.

Hence, it is absolutely true that growth and investment in education result in reducing the
inequalities not within the boundaries of nation about but also across the borders.

Question 13. Explain how investment in education stimulates economic growth. (Or)
Explain the role of education in the development of a country.
Answer. Education plays an important role in the economic development of a nation in the
following ways:

Development of skills: Education plays an important role in improving skills which are required
to enhance the productivity level. It helps develop skills and impart training to increase production.
It facilitates the use of innovative ideas and ability to adapt to changes in science and technology.
Thus, the use of skilled workers in production paved the way towards sustainable economic
development.

Increase in productivity: Physical capital such as buildings, equipment and machinery is

important for increasing the quality and quantity of production. However, using these resources
effectively is more important for the rise in productivity and capital value. Human resource plays
the most crucial role and without which it is not possible to innovate, use and upgrade physical
capital for economic development. Educational investment provides higher quality of human
resources to increase the level of production.

Development in mental ability: Decision-making ability and mental abilities of an individual

are developed through continuous investment in education. It develops the ability to make right
choices of the available resources in the economy. This leads to efficient use of resources resulting
in higher productivity. Thus, education prepares individuals as human resources for a nation.

Modernisation: The education system focuses on increasing productivity of human resources

with technical progress at all levels of work. It increases the receptivity of people to modern and
scientific ideas. Since independence, the number of technical and professional educational
institutions increased to a great extent. Thus, the use of advanced technology in the production
process becomes easier with suitable educational system.

Increase in the standard of living: Higher expenditure on education increases the efficiency of
the labour productivity as they become skilled in their jobs. An educated person possesses higher
productivity and efficiency and therefore has a relatively higher income earning capacity. The
higher income and greater access to modern techniques with rise in the education level raises the
standard of living and quality of life in the nation.

Increase in participation rate and equality: An individual with the capacity to obtain
knowledge and specialised skills provides higher employment opportunities. This enhances the
productive efficiency and the rate of participation of workers in economic, social and political
activities. This high rate of participation implies the high degree of economic and social equality in
a nation.
Question 14. Bring out the need for on-the-job-training for a person.

Answer. Expenditure on on-the-job training is a source of human capital formation. Benefits of

training are more than the cost incurred in training workers. Technical training adds to the capacity
of the people to produce more. Firms given on-the-job- training to enhance the productive skills of
the workers so as to enable them to absorb new technologies and modem ideas

Generally, senior and experienced workers in the organisation provide on-the-job-training to junior
workers in the organisation only or the workers may be trained off campus. Information bringing
out the need for on-the-job training for a person:
i) It provides return in the form of increased labour efficiency and productivity.
ii) It increases the accessibility of people to modern and scientific ideas.
iii) It increases the efficiency and ability of people to absorb new technology.
iv) It helps in reducing the wastage of time and money and thus ensures optimal utilisation of
resources.
v) It helps in reducing the burden of the supervisor.
vi) It makes employees better equipped to face new challenges and deal with various situations and
problems.
vii) It enables to handle complex machines in a more efficient manner and hence reduces the
occurrence of accidents.
Question 15. Trace the relationship between human capital and economic growth.

Answer. Human capital is believed to be positively related to economic growth though, it is difficult
to establish a relation of cause and effect from the growth of human capital to economic growth, but
we can see that human capital formation is related to economic growth in the following manner:

(i) Increase in Labour Productivity: Investment, in human capital through expenditure on

education, health, etc enhances the productivity of labour as they become physically fit and skilled
in their jobs. It leads to efficient utilisation of the material inputs and capital. With increase in
productivity output increases at an increasing rate and hence, economic growth decelerates. The
population itself become an asset in accelerating economic growth, if it is trained and educated on
sound lines.

(ii) Innovations: Research and development is necessary for innovations in an economy which
lead to advancement in technology and creation of new products. Human capital formation helps
in preparing learned scientists and researchers in various subjects who bring out innovative
products, technologies and processes and thus, add to the economic growth.

(iii) Absorptive Capacity: Advanced technology can be adopted only if the skills and knowledge
required for using that technology is present in the country. Investment in education and on-the-
job training help to create these skills and knowledge base and thus, helps in absorption of new
technologies which lead to higher production and thus, economic growth.

(iv) Participation Rate: Human capital formation makes a greater proportion of population capable
of participating in the economic, social and political activities of a nation. Thus, raising the
participation of people in the process of economic growth.
Human capital formation raises the process of economic growth and economic growth raises the
process of human capital formation. There is a cause and effect relationship between human
capital and economic growth. It is shown in the figure.

Question 16. Discuss the need for promoting women’s education in India.

Answer. Women have always been neglected when it comes to education in India. The access to
education has always been biased towards male population due to our social system which is
patriarchal. The lack of education has caused exploitation of women and has resulted in a lower
social status of women in India. There is an imminent need for promoting female education in
India, because of the following reasons:

(i) Women education is essential for providing them economic independence and empowering
them to save them from exploitation and domestic violence.
(ii) Women education is essential in order to raise the social status of women so that the quality of
life of women can be improved.
(iii) Educating woman helps in promoting family welfare programmes and thus, in population
control.
(iv) Educated woman are aware of the importance of health care and thus, take proper care of their
family members contributing in human capital formation.
(v) Educating a woman means educating a family. An educated woman can inculcate moral values
in her children and can facilitate their education.

Women Education Council has been set up to provide technical education to the women. It has
set up many women polytechnics.

Question 17. Argue in favour of the need for different forms of government intervention
in education and health sectors.

Answer. Public and private institutions function in the health and education sectors. Functioning
of these institutions needs to be monitored by the different forms of government intervention.

Government intervention in education and health sectors is necessary because of the following
reasons:
1. Poor people cannot afford to have the health and education facilities provided by the private sector
because of high costs. So, the government needs to provide these services to the poor at lower costs.

2. Health and education facilities provided by private institutions are mainly located in urban areas.
It is the responsibility of the different governments to encourage private firms to provide health and
education services in rural areas.

3. Education and health care services create both private as well as social benefits. Both private and
public institutions are needed to provide these services and government must keep its control on
them.

4.Expenditure on education and health institutes are important for the growth of a nation. The
private providers of education and health services need to be regulated by the government.

Thus, government intervention is important to improve and maintain the education and health
status of a country.

Question 18. What are the main problems of human capital formation in India?
Answer. Main problems of human capital formation in India are:

1. Increasing population: An increase in population has adverse effect on the quality of human
capital in developing countries such as India. This leads to reduction in per head availability of
existing services such as employment, education, health care, sanitation, housing, electricity,
transport as well as nutrition.

2, Poverty: People who live below the poverty line cannot afford basic education and healthcare
facilities. This is one of the main problems of human capital formation in India.

3. Migration: Highly educated individuals migrate from one place to another for finding better
employment opportunities. Economic growth and development is negatively affected by this
migration of highly skilled labour.

4.Inappropriate planning: Inappropriate planning of human resources in India is the major

obstacle in human capital formation. The supply of workforce does not match with the growing
demand. There is no effort to maintain the demand and supply of technical labour force and to raise
the standard of education. This has increased the rate of unemployment in the country.

5. Low quality of health and education facilities: Most of the health and education institutions
provide inferior quality of education and health facilities. This negatively affects human capital
formation.

6.Long Term Process. The process of human development is a long-term policy because skill
formation takes time. The process which produces skilled manpower is thus slow.
7. Brain Drain: Migration of highly skilled labour termed as “Brain Drain” adversely affects the
economic development. People migrate from one place to another in search of better job
opportunities and handsome salaries. It leads to the loss of quality people like doctors, engineers,
etc. who have high calibre and are rare in a developing country. The cost of such loss of quality
human capital is very high.

8. Weak in science and technology: Agriculture sector is neglected where the workers are not
given on-the-job training to absorb emerging new technologies. In respect of education, the
performance is particularly unsatisfactory in the fields of science and development of modern
technology.

Question 19. In your view, is it essential for the government to regulate the fee structure
in education and health care institutions? If so, why?

Answer. i) Education and health sectors are the two key sectors responsible for the formation of good quality
human capital. The development of these two sectors are emphasized by almost all the less developed
countries.

(ii) In India, expenditures on both education and health sectors are carried out by all the three tiers of the
government and also by private institutions. While, private institutions are guided by market and profit
motive, the public institutions are guided by the main motive of rendering services and to enhance human
capital.

(iii) As the cost of education and health facilities provided by the private institutions is higher, so it is difficult
for the majority of the population to avail these services because of their economic inability. Thus, it is very
important for the government to provide quality education and health facilities to this section of the
population.

(iv) As the Indian constitution counts right to free education and medical facilities as the fundamental right
of citizens, so it is the responsibility of the government to provide education and health services to all,
moreover, the private institutions are unable to reach the remote and rural areas where people lack
initiative for education and health. In this context, the role of government is to encourage them and to
make them aware of the advantages of education and health.

(v) There are some underprivileged sections of population like ST, SC, OBC, the interests of whose can only
be protected by the interference of the government.

(vi) The people as individual consumers do not have complete information about the quality of services and
the related costs. This often leads to the exploitation of people. Hence, the government intervention in health
and education sector to regulate the fees structure is must in order to enhance the quality of human capital.