Economics

Human Development

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Human Development

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Human Capital Formation in India — Sources, Human Capital vs Human Development, Education Sector

›Five sources of human capital: education, health, on-the-job training, migration, information
›Human capital = means to productivity; Human development = ends in themselves (education/health are rights)
›Human capital creates BOTH private and social (external) benefits; physical capital creates only private benefit

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**Human capital** = the stock of skill and productive knowledge embodied in human beings through investment in education, health, on-the-job training, migration and information. Just as physical capital (factories, machines) raises productivity, investment in human beings raises their ability to generate income. Societies require good human capital to produce more human capital. **Five sources of human capital formation:** 1. **Education** — raises earning capacity; gives social standing, enables better choices, stimulates innovation 2. **Health** — preventive medicine (vaccination), curative medicine (medical intervention during illness), social medicine (health literacy), clean water and sanitation; unhealthy workers lose productivity 3. **On-the-job training** — firm trains workers either in-house or through off-campus training; workers required to work for specific period post-training (firm recoups investment) 4. **Migration** — people migrate for higher salaries; costs include transport, higher cost of living, and psychic costs; expenditure on migration is a source of human capital formation 5. **Information** — expenditure on acquiring information about labour markets, educational institutions, salary levels; needed for efficient utilisation of human capital stock --- ### Human Capital vs Human Development **This is a critical UPSC conceptual distinction:** | Human Capital | Human Development | |---------------|-------------------| | Education and health seen as **means** to increase labour productivity | Education and health seen as **ends** in themselves — integral to human well-being | | Human beings are a **means** to higher output | Human beings are **ends** — their well-being is the ultimate goal | | Investment in education/health is unproductive if it does not enhance output | Basic education and health are rights, irrespective of impact on productivity | | Treats human beings as means to production | Every individual has a right to be literate and live a healthy life | NCERT: "Human capital treats human beings as a means to an end; the end being the increase in productivity. In the human development perspective, human beings are ends in themselves." --- ### Physical Capital vs Human Capital (Box 4.1) Key differences: - **Tangibility:** Physical capital is tangible and separable from its owner; human capital is intangible and inseparable from owner - **Mobility:** Physical capital is completely mobile across countries; human capital is NOT perfectly mobile (restricted by nationality, culture) - **Depreciation:** Physical capital depreciates with use; human capital depreciation can be reduced through continuous investment in education and health - **Externalities:** Physical capital creates only private benefit; human capital creates both private AND social benefits (external benefit) — educated persons contribute to democratic process and socio-economic progress --- ### Human Capital and Economic Growth The **Seventh Five Year Plan**: "Human resources development (human capital) has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population." Key empirical observations: - Analysis shows convergence in human capital measures (education and health) across developing and developed countries - BUT no corresponding convergence in per capita real income - Human capital growth in developing countries has been faster but growth of per capita real income has not been as fast - Causality flows in BOTH directions: higher income → higher human capital investment AND higher human capital → higher income --- ### Select Development Indicators (Table 4.1) | Particulars | 1951 | 1981 | 1991 | 2001 | 2018-22 | |-------------|------|------|------|------|---------| | Real Per Capita Income (Rs) | 7,651 | 12,174 | 15,748 | 23,095 | 94,054 | | Crude Death Rate (per 1,000) | 25.1 | 12.5 | 9.8 | 8.1 | 6.0 | | Infant Mortality Rate | 146 | 110 | 80 | 63 | 28 | | Life Expectancy — Male | 37.2 | 54.1 | 59.7 | 63.9 | 68.6 | | Life Expectancy — Female | 36.2 | 54.7 | 60.9 | 66.9 | 71.4 | | Literacy Rate (%) | 16.67 | 43.57 | 52.21 | 65.20 | 78 | --- ### Education Sector in India **Government expenditure on education (two measures):** 1. As a percentage of **total government expenditure** — indicates relative priority 2. As a percentage of **GDP** — indicates how much of national income is committed Data: Education expenditure as % of total government expenditure increased from 7.92 to 16.54 (1952-2020); as % of GDP increased from 0.64 to 4.47. **Education Commission (1964-66):** Recommended at least **6 per cent of GDP** to be spent on education. This target is accepted as the desired level; current level (~4%) remains below. **Tapas Majumdar Committee (1999):** Estimated expenditure of Rs 1.37 lakh crore over 10 years (1998-99 to 2006-07) to bring all children in age group 6-14 under school education. **Right to Education (RTE) Act, 2009:** Right of Children to Free and Compulsory Education Act; makes free education a fundamental right for all children in age group **6-14 years**. **Education cess:** Government of India levies a **2 per cent 'education cess'** on all Union taxes; revenues earmarked for elementary education. **Key educational institutions:** - **NCERT** (National Council of Educational Research and Training) — under Ministry of Education - **UGC** (University Grants Commission) — higher education regulation - **AICTE** (All India Council of Technical Education) — technical education - **ICMR** (Indian Council of Medical Research) — medical research and health sector **National Education Policy 2020:** Notes world is undergoing rapid changes — big data, AI, machine learning. Skilled workforce in mathematics, computer science, data science increasingly in demand. **Educational Attainment (Table 4.2):** - Adult literacy rate (15+): Male 61.9% (1990) → 82% (2017-18); Female 37.9% → 66% - Primary completion rate: Male 78% (1990) → 93% (2017-18); Female 61% → 96% - Youth literacy rate (15-24): Male 76.6% → 93%; Female 54.2% → 90% ---

All key facts

›Five sources of human capital: education, health, on-the-job training, migration, information
›Human capital = means to productivity; Human development = ends in themselves (education/health are rights)
›Human capital creates BOTH private and social (external) benefits; physical capital creates only private benefit
›Table 4.1: Infant mortality 146 (1951) → 28 (2018-22); Life expectancy male 37.2 → 68.6
›Literacy rate: 16.67% (1951) → 78% (2018-22)
›Education Commission 1964-66: recommended 6% of GDP on education (not yet achieved)
›RTE Act 2009: free and compulsory education for children aged 6-14 years
›Education cess = 2% on all Union taxes; earmarked for elementary education
›NCERT, UGC, AICTE under education sector; ICMR under health sector
›NEP 2020: emphasises multidisciplinary education for knowledge economy
›Societies need sufficient human capital in the form of competent people (professors, professionals) to produce other human capital (nurses, doctors, engineers).
›Health expenditures include preventive medicine (vaccination), curative medicine (medical intervention), social medicine (health literacy), and provision of clean drinking water and good sanitation.
›Firms insist that workers work for a specific period after on-the-job training to recover the benefits of enhanced productivity.
›Migration in India is often driven by unemployment (rural-urban) or by technically qualified persons seeking higher salaries abroad.
›Expenditure on information is for knowing salary levels for various jobs, suitable educational institutions, and their costs, which is necessary for efficient human capital utilisation.
›Human capital formation is partly a social process and partly a conscious decision of the possessor of human capital.
›Empirical evidence to prove that an increase in human capital causes economic growth is nebulous, possibly due to measurement problems where indicators like years of schooling or mortality rates may not reflect the quality of education or true health status.
›The National Education Policy 2020 highlights the increasing demand for a skilled workforce in mathematics, computer science, data science, multidisciplinary abilities due to advancements like big data, machine learning, and AI, and for new skilled labour in biology, chemistry, physics, agriculture, climate science, and social science due to climate change and resource depletion.
›From a human development perspective, human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity.
›In India's federal system, expenditures on both education and health are carried out simultaneously by all three tiers of government: Union, State, and Local (Municipal Corporations, Municipalities, Village Panchayats).
›Government intervention in education and health is essential because these expenditures have substantial long-term and irreversible impacts, and individual consumers often lack complete information, allowing private providers to acquire monopoly power and exploit.
›The National Medical Commission is a key organisation that facilitates institutions under the health sector, alongside ministries and departments at Union and State levels.
›Government provides education and health services free of cost for deserving citizens and socially oppressed classes because a large section of the population cannot afford basic or super specialty care, and basic education and healthcare are considered citizens' rights.
›The increase in government education expenditure between 1952 and 2020 has not been uniform, showing irregular rises and falls.
›Elementary education takes a major share of the total education expenditure, while higher/tertiary education receives the least share.
›In 2020-21, per capita public expenditure on elementary education varied considerably across states, from Rs 96,968 in Sikkim to Rs 10,710 in Bihar, leading to differences in educational opportunities and attainments.
›Despite increases in literacy rates, the absolute number of illiterates in India is comparable to India’s population at the time of independence.
›The Directive Principles of the Constitution, passed in 1950, noted that the government should provide free and compulsory education for all children up to 14 years within 10 years from the commencement of the Constitution.
›Promoting women's education in India is crucial for improving their economic independence and social status, and because women's education positively impacts fertility rates and healthcare for women and children.
›The Indian education pyramid is steep, indicating a progressively smaller number of people reaching higher education levels.
›Unemployment is highest among educated youth; NSSO data (2011-12) showed unemployment rates of 19% for rural male graduates and above, 16% for their urban counterparts, and nearly 30% for young rural female graduates, in contrast to only 3-6% for primary-level educated youth (this situation has moderately improved by PLFS 2023-24).
›India's services sector employs skilled people, while the country's most abundant resource is unskilled labour, posing a challenge for employment generation for the large unskilled population entering the workforce (12 million people annually).
›"Make in India" campaign launched in Sept 2014 addresses areas like skill development, infrastructure, and technology to foster manufacturing growth.
›India's manufacturing sector suffers from low labour productivity and insufficient skills, with Indian workers being 4-5 times less productive than counterparts in Thailand and China, as per a McKinsey report.
›The Fourth Industrial Revolution (Industry 4.0) necessitates continuous large-scale re-skilling and up-skilling of the existing workforce to adapt to digital labour and constant retooling requirements.
›Industry 4.0 is expected to have a profound impact on jobs, with predictions (2015) that one in

National Policy for Skill Development and Entrepreneurship

›The 'Make in India' campaign, launched in September 2014, addresses skill development as one of its pertinent factors. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›One of the targets under the 'Make in India' initiative is to create appropriate skill sets among rural migrants and urban poor for inclusive growth. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›If India's growth is to be driven by services, it must aggressively focus on "Skilling India," which requires a greater focus on education. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md

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The provided source chapter "Indian Economy after 2014" does not specifically detail a policy named "National Policy for Skill Development and Entrepreneurship." However, it underscores the importance of skill development and fostering entrepreneurship within the broader economic agenda. Skill development is noted as a pertinent factor addressed by the 'Make in India' campaign, aiming to create appropriate skill sets among rural migrants and urban poor for inclusive growth. The source also emphasizes "Skilling India" for growth in the services sector and identifies insufficient skills as a challenge for manufacturing productivity. Entrepreneurial support is mentioned as an objective for NITI Aayog, and various initiatives like A Scheme for Promoting Innovation and Rural Entrepreneurs (ASPIRE), Stand Up India, Start Up India, Atal Innovation Mission (AIM), and Chunauti are highlighted for promoting entrepreneurship and startups. These instances demonstrate the government's focus on these areas, though not under the specific requested policy title.

All key facts

›The 'Make in India' campaign, launched in September 2014, addresses skill development as one of its pertinent factors. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›One of the targets under the 'Make in India' initiative is to create appropriate skill sets among rural migrants and urban poor for inclusive growth. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›If India's growth is to be driven by services, it must aggressively focus on "Skilling India," which requires a greater focus on education. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›Low labour productivity in India’s manufacturing sector is partly attributed to the insufficient skills of the labour force. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›NITI Aayog's objectives include creating a knowledge, innovation, and entrepreneurial support system through a collaborative community of experts and partners. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›A Scheme for Promoting Innovation and Rural Entrepreneurs (ASPIRE) was launched with the objective of establishing a network of technology and incubation centres to accelerate entrepreneurship. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md
›The "Startup India, Stand-up India" initiative was announced to promote a culture of entrepreneurship, innovation, and startups in the country, supported by schemes like Stand Up India and Start Up India. — Vivek Singh — Indian Economy, ch07-indian-economy-after-2014.md

Human Capital vs. Human Development

›Human capital considers education and health primarily as a means to increase labour productivity. (p. 66)
›From the human capital perspective, human beings are treated as a means to an end, with the end being increased productivity. (p. 66)
›In the human capital view, investments in education and health are deemed unproductive if they do not enhance the output of goods and services. (p. 66)

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The terms "Human Capital" and "Human Development" sound similar but have a clear distinction. Human Capital views education and health primarily as means to increase labour productivity. In this perspective, human beings are treated as a means to an end, with the ultimate goal being an increase in overall productivity. Any investment in education and health is considered unproductive if it does not lead to enhanced output of goods and services. In contrast, Human Development is based on the idea that education and health are integral components of human well-being. From this viewpoint, individuals' ability to read, write, and lead a long, healthy life is crucial, as these abilities enable them to make other choices they value. Here, human beings are considered ends in themselves. Therefore, investments in education and health should aim to increase human welfare, even if these investments do not directly result in higher labour productivity. Basic education and health are intrinsically important, irrespective of their contribution to economic output, and every individual has a right to them.

All key facts

›Human capital considers education and health primarily as a means to increase labour productivity. (p. 66)
›From the human capital perspective, human beings are treated as a means to an end, with the end being increased productivity. (p. 66)
›In the human capital view, investments in education and health are deemed unproductive if they do not enhance the output of goods and services. (p. 66)
›Human development is based on the idea that education and health are integral to human well-being. (p. 66)
›According to the human development perspective, people need the ability to read and write and the ability to lead a long and healthy life to make choices they value. (p. 66)
›In the human development perspective, human beings are considered ends in themselves. (p. 66)
›Human welfare should be increased through investments in education and health, even if such investments do not result in higher labour productivity, from a human development standpoint. (p. 66)
›Basic education and basic health are considered important in themselves in the human development view, irrespective of their contribution to labour productivity. (p. 66)
›The human development view asserts that every individual has a right to basic education and healthcare, meaning a right to be literate and lead a healthy life. (p. 66)

Demographic Profile of Colonial India

›The first census in British India was conducted in 1881. (ch01-development-policies-and-experience.md)
›Before 1921, India was in the first stage of demographic transition. (ch01-development-policies-and-experience.md)
›The second stage of demographic transition began after 1921. (ch01-development-policies-and-experience.md)

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The demographic profile of Colonial India was characterized by a stagnant population growth prior to 1921, marking the first stage of demographic transition. After 1921, the second stage began, but population growth and its rate remained low. Social development indicators were largely discouraging. The overall literacy level was less than 16 percent, with female literacy being a negligible 7 percent. Public health facilities were either absent or highly inadequate, leading to rampant water and air-borne diseases. This resulted in a very high overall mortality rate, and an alarming infant mortality rate of approximately 218 per thousand. Life expectancy was significantly low at 32 years. Extensive poverty also prevailed throughout the colonial period, further worsening the population's profile. Regarding occupational structure, there was little change during the colonial era. The agricultural sector dominated, employing a high share of 70-75 percent of the workforce. Manufacturing accounted for only 10 percent, while the services sector constituted 15-20 percent. Some regional variations were observed, with areas like the then Madras Presidency, Bombay, and Bengal experiencing a decline in agricultural workforce dependence and a corresponding increase in manufacturing and services. Conversely, states such as Orissa, Rajasthan, and Punjab saw an increase in the share of their workforce engaged in agriculture.

All key facts

›The first census in British India was conducted in 1881. (ch01-development-policies-and-experience.md)
›Before 1921, India was in the first stage of demographic transition. (ch01-development-policies-and-experience.md)
›The second stage of demographic transition began after 1921. (ch01-development-policies-and-experience.md)
›Neither the total population nor the rate of population growth was very high during the second stage of transition. (ch01-development-policies-and-experience.md)
›The overall literacy level was less than 16 percent. (ch01-development-policies-and-experience.md)
›Female literacy was about seven percent. (ch01-development-policies-and-experience.md)
›Public health facilities were largely unavailable or highly inadequate. (ch01-development-policies-and-experience.md)
›Water and air-borne diseases were rampant. (ch01-development-policies-and-experience.md)
›The overall mortality rate was very high. (ch01-development-policies-and-experience.md)
›The infant mortality rate was about 218 per thousand. (ch01-development-policies-and-experience.md)
›Life expectancy was very low, at 32 years. (ch01-development-policies-and-experience.md)
›Extensive poverty prevailed in India during the colonial period. (ch01-development-policies-and-experience.md)