Human Capital Formation in India — Class 11 Economics

Human capital formation is the process of turning human resources into productive human capital through investment in people, much as a firm invests in machines to raise future output. The chapter identifies five sources of human capital formation: education, health, on-the-job training, migration and information. Spending on these is like spending on capital goods, because it raises a person's future earning capacity. Health expenditure covers preventive, curative and social medicine and safe water; migration, though it involves transport and other costs, lets people move to better-paid work; and information helps people use education and health facilities well. Physical capital differs from human capital: physical capital is tangible, separable and mobile across countries, while human capital is intangible, inseparable from its owner and less mobile, and creates social as well as private benefits. Human capital contributes to economic growth, since an educated and healthy worker is more productive, though the causality runs both ways. In India, education and health are looked after by all three tiers of government, with bodies such as NCERT, UGC and AICTE for education and the ICMR for health. The Education Commission (1964–66) recommended spending at least six per cent of GDP on education, but actual spending remains a little over four per cent. The Right to Education Act of 2009 made free elementary education a fundamental right for children aged 6–14. Human development goes beyond human capital by treating education and health as ends in themselves.