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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% ---
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.
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.
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.