HUMAN CAPITAL FORMATION IN INDIA
INTRODUCTION
We know that 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.
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. The availability of educated labour force facilitates adaptation of new technologies.
WHAT IS HUMAN CAPITAL?
Human capital means to turn human resources like students into human capital like engineers and doctors.
To understand what human capital means, it is necessary to understand the following:
(i) What are the sources of human capital?
(ii) Is there any relation between human capital and economic growth of a country?
(iii) Is the formation of human capital linked to man'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
Investment in education is considered as one of the main sources of human capital.Other sources of human capital formation are
• Investments in health
• On- the job training
• Migration and
• Information
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. Individuals invest in education with the objective of increasing their future income.
HEALTH
Health is also considered as an important input for the development of a nation because healthy people can work better than a sick person. A sick labourer without access to medical facilities will be absent from work and there is loss of productivity. Hence, expenditure on health is an 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 expenditures.
Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation.
ON THE JOB TRAINING
• Firms spend on giving on-the job-training to their workers.
• Workers may be trained in the firm itself under the supervision of a skilled worker or the workers may be sent for off-campus training.
• On-the-job training help firms to benefits from enhanced productivity because of the training. Expenditure regarding on-the-job training is a source of human capital formation because enhanced labour productivity is more than the cost of training.
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 high social status.
• The enhanced earnings in the new place is more than the costs of migration; hence,expenditure on migration is also a source of human capital formation.
INFORMATION
• People spend to acquire information relating to the labour market and other markets.
• 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
• Expenditure on getting information relating to the labour market and other markets is also a source of human capital formation.
HUMAN CAPITAL AND ECONOMIC GROWTH
• The labour skill of an educated person is more than that of an uneducated person and skilled labour generates more.
• Economic growth means the increase in real national income of a country and the contribution of the educated and healthy person to economic growth is more than that of an illiterate person.
• This enhanced productivity of human beings contributes significantly towards increasing labour productivity and also brings in innovations and creates ability to absorb new technologies.
• Education provides knowledge to facilitate inventions and innovations.
• Education is 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.
• Improvement in education and health sectors and growth in real per capita income in both developing and developed countries shows the measures of human capital. These are reasons to believe that human capital and economic growth flows in either directions. That is, higher income causes building of high level of human capital and vice versa.
HUMAN CAPITAL – INDIA
• India recognised the importance of human capital in economic growth long ago. With reference to India it states, between 2005 and 2020 India expects a 40 percent rise in the average years of education in India.
• Two independent reports on the Indian economy have identified that India would grow faster due to its strength in human capital formation.
• World Bank, in its recent report, 'India and the Knowledge Economy -Leveraging Strengths and Opportunities', states that India should make a transition to the knowledge economy and if it uses its knowledge as much as Ireland does then the per capita income of India will increase from little over $1000 per person to $3000 per person by 2020.
• Deutsche Bank, a German bank, in its report on 'Global Growth Centre’s (published on 1.7.05) identified that India will emerge as one among four growth centre’s in the world by 2020. It further states that the Indian economy has all the key ingredients for making this transition, such as, mass of skilled workers, a well-functioning democracy and a diversified science and technology infrastructure.
Please click on below link to download CBSE Class 12 Economics Human Capital Formation in India Worksheet Set A