INTRODUCTION
The development of human resources means increasing the quality of human beings, which helps in the process of growth and development of the economy.
PHYSICAL CAPITAL AND HUMAN CAPITAL
The economic development of a country is possible only when there is optimum utilization of physical and human resources.
- Physical Capital – It includes all those inputs which are required for further production, like plant and machinery, factory, buildings, raw materials, etc.
- The physical capital is needed to make use of physical resources.
- Its accumulation is quite important for economic growth of a country.
- Decision regarding investment in physical capital is taken on the basis of one’s knowledge in this regard.
2. Human Capital – It refers to the skills that a person acquires through education, training and/or experience, adding to his/her value to the production process.
- It is the stock of skill, ability, expertise, education & knowledge embodied in the people.
- Human Capital is needed to make effective use of physical capital.
- There is a need for investment in human capital to produce more human capital out of human resources.
MEANING OF HUMAN CAPITAL FORMATION (HCF)
Human Capital formation refers to the process of addition made to the stock of skilled and capable people in a country over a period of time. In other words, HCF refers to development of abilities and skills among the population of the country.
- It is the process of acquiring and increasing the number of person, who have the skills, education and experience. For example – if in beginning of a year, human capital stock of a nation consists of 30 lakh skilled skilled workers and at the end of the year, it increases to 34 lakh skilled workers, then is human capital formation to the extent of 4 lakh skilled workers in a year.
SOURCES OF HUMAN CAPITAL FORMATION
There are a number of ways by which human capital can be which human capital can be increased. The different sources of human capital formation are:
- Expenditure on Education: Proper utility of manpower depends on the system of education and training of people.
- Labour skill of an educated person is more than that of and uneducated person, which enables him to generate more income than the uneducated person.
- Spending on education by individuals is similar to spending on capital goods by companies. Individuals invest in education to increase their future income and raise their living standard.
2. Expenditure on Health: Health expenditure is a source of human capital formation as it directly increases the supply of healthy human force.
- Poor health and undernourishment adversely affect the quality of manpower. A sick labour, without access to medical facilities, is compelled to abstain from work, which leads to a loss o productivity
- Therefore expenditure on healthy is important to build and maintain a productive labour force and to improve the quality of life of people in society.
3. On-the-Job Training: As stated earlier, productivity of physical capital is substantially enhance with the improvement in human capital. Due to this reason, many firms provide on-the-job training to their workers.
- Such training has the advantage that it can be provided fast and without much cost.
- It increases the skill and efficiency of the workers and leads to an increases in production of goods and productivity of labour.
4. Expenditure on Migration: People migrate from one place to another in search of jobs that fetch them higher salaries.
- Unemployed people from rural areas migrate to urban areas in search of jobs.
- Technically qualified persons (like engineers, doctors, etc.) migrate to other countries because of higher salaries that they may get in such countries.
5. Expenditure on Information: Expenditure is incurred to acquire information relating to labour market and other markets.
- It involves amount spent on seeking information about educational institutions, their educational standards and cost of education.
- For example- people want to know the level of salaries associated with various types of jobs, whether educational institutions provide the right type of employable skills and at what cost.
HUMAN CAPITAL AND ECONOMIC GROWTH
Economic growth means the increase in real national income of a country.
- The contribution of an educated person to the economic growth is more than that of an illiterate person.
- Similarly, a healthy person also contributes to economic growth by providing an uninterrupted labour supply for a longer period of time.
HCF promotes inventions, innovations and technological improvements
The human capital formation (HCF) not only increases the productivity of human resources but also stimulates innovations and creates the ability to absorb new technologies.
- Education provides knowledge to understand changes in society and scientific advancements, thus facilitating inventions and innovations.
- Similarly, the availability of educated labour force facilitates adaptation to new technologies.
Difficult to prove Cause and Effect relation between Human capital and Economic Growth
Due to measurement problems, it is difficult to prove that increase in human capital causes economic growth.
- For example – education measured in terms of years of schooling, teacher-pupil ratio and enrolment rates may not reflect the quality of education.
IMPORTANCE OR ROLE OF HUMAN CAPITAL FORMATION
The importance / role of human capital formation will be clear from the following points:
- Effective use of Physical Capital – The growth and productivity of physical capital depends extensively on the human capital formation.
The physical capital can be created only by means of hard and intelligent work of human beings in the economy.
2. Higher productivity and production – Human capital formation raises the productivity and production as know ledgeable and skilled workers make better use of resources.
Increase in productivity and quality production depends on technical skill of the people, which can be acquired only by means of education, training and maintaining the health of the people.
3. Inventions, innovations and technological improvement – The human capital formation stimulates innovations and creates ability to absorb new technologies.
Education helps to understand the scientific advancements and changes taking place in the society, which facilitates inventions and innovations.
4. Modernization of attitudes – The knowledgeable, skilled and physically fit people are powerful instruments of change in the society.
Economic development of a country depends on the minds of the people and their changing attitudes towards creating a ‘will’ for development.
5. Increases life expectancy – Formation of human capital raises life expectancy of the people. Health facilities and availability of nutritive food enable people to live a healthy and long life. This in turn, adds to the quality of life.
6. Improves Quality of Life – The quality of population depends upon the level of educations, health of a person and skill formation acquired by the people.
- Human capital formation not only makes people productive and creative, but also transforms the lives of the people.
- People start living and enjoying higher incomes and more satisfying life.
7. Control of population growth – The has been observed that educated persons have smaller families as compared to illiterate families. So, the spread of education is necessary to control the population growth rate.
PROBLEMS OF HUMAN CAPITAL FORMATION
The various problems of human capital formation are:
- Insufficient resources – The resources allocated to forming human capital have been much less than the resources required. Due to this reason, the facilities for the formation of human capital have remained grossly inadequate.
- Serious inefficiencies – There is a lot of wastage of society’s resources as capabilities of educated people are either not made use of (in case of unemployment) or are underutilized (in case of underemployment).
- Brain Drain – People migrate from one place to another in search of better job opportunities and handsome salaries.
- High Growth of Population – The continuous rise in population has adversely affected the quality of human capital.
- Several imbalances – A greater proportion of resources have been diverted towards higher education, which is meant for few people as compared to primary and secondary education.
HUMAN CAPITAL FORMATION IN INDIA: GREAT PROSPECTS
We have already learnt that human capital formation is the outcome of investments in education, health, on-the-job training, migration and information. Out of all these elements, education and health are very important sources of human capital formation.
- We know that ours is a federal country with a union government, state governments and local governments (Municipal Corporations, Municipalities and Village Panchayats). The Constitution of India mentions the functions to be carried out by each level of government.
Need for Government Intervention
- The expenditures on education and health make substantial long-term impacts and they cannot be easily reversed. For example – if a child is admitted to a school or health care center and required services are not provided in such instituted, then substantial amount of damage would have been done before the decision is taken to shift the child to another institution.
- Individual consumers of these services do not have complete information about the quality of services and their costs.
- The providers of education and health services may acquire monopoly power and may get involved in exploitation.
EDUCATIONAL SECTOR IN INDIA
Growth in Government Expenditure on Education
The expenditure by the government on education is expressed in two ways:
- As a percentage of total government expenditure – It indicates the importance of education in the scheme of things before the government. During 1952-2014, it increased from 7.92 to 15.7.
- As a percentage of Gross Domestic Product (GDP) – It expresses the proportion of income spent on development of education in the country. During 1952-2014, it increased from 0.64 to 4.13.
Important Points about Government Expenditure
- Government spends more on Elementary Education – Elementary Education (primary school education) takes a major share of total education expenditures.
- Expenditure on Tertiary Education is important – On an average, government spends less on tertiary education. However, ‘expenditure per student’ in tertiary education is higher than that of elementary education.
- Difference in Educational Opportunities across States – In 2014-15, the per capita education expenditure differed considerably across states from as high as Rs.34,651 in Himachal Pradesh to as low as Rs.4,088 in Bihar.
EDUCATIONAL ACHIEVEMENTS IN INDIA
- Adult Literacy Rate – Adult literacy rate refers to the ratio of literate adult population to the total adult population in a country.
- In case of males, the adult literacy rate increased from 61.9% in 1990 to 82% in 2017-18.
- In case of females, the adult literacy rate was just 37.9% in 1990, which increased to 66% in 2017-18, which is still far below the satisfaction level.
2. Primary Completion Rate – This is the percentage of students who complete the last year of primary school.
- In case of males, the primary completion rate increased from 78% in 1990 to 93% in 2017-18.
- In case of females, the rate increased form 61% in 1990 to 96% in 2017-18.
3. Youth Literacy Rate – It is the percentage of people aged 15-24 who can, with understanding, read and write a short, simple statement on their everyday life.
- In case of males, there was marginal increase in youth literacy rate from 76.6% in 1990 to 93% in 2017-18.
- In case of females, the youth literacy rate increased from 54.2% in 1990 to 90% in 2017-18.
