Class 12-science NCERT Solutions Economics Chapter 5 - Human Capital Formation in India

Two major sources of human capital in a country:

1. Educational investment: Human resource development is the different aspects of development of people through investment in education. A well-planned system of education brings balanced development in an economy. Educational investment enables one to develop intellectual skills, earn higher income, make better choices in life and provides knowledge to understand the changes taking place in society to stimulate innovation. It provides better social standing and pride. It not only enables higher earning capacity but also helps to seek highly valued benefits. The quality of human resources is determined by the level of investment in education. So, higher the educational investment, faster is the economic development of a nation.
2. Health investment: The role of health in the development of human capital is vital. To prevent a population from being a liability of a country, the government must pay adequate attention towards the health of the public. This is possible only with government investment on health infrastructure. Educated people will invest in their child's health and education, thus coming up with a bright future for the nation. The level of income earned increases with the growth of investment on health because the productive capacity of the working population depends on health investment. Over the last few decades, India has developed health infrastructure and manpower at all levels of government and private health care centres. This enables to progress in improving the health of the population. 

Indicators of educational achievement in a country:

1. Primary education completion rate: Primary education completion rate is the percentage of students completing the last year of primary school. This rate gives an idea regarding student progression and monitors the coverage of the educational system. This enables us to measure human capital formation in terms of quality and efficiency of the educational system. If the primary education completion rate is higher, it reflects the cautious steps of the people towards educating children.  
2. Adult literacy rate: Adult literacy rate is the percentage of literates in the age group 15 years and above. This measures the stock of literates within the adult population who are able to write and continue to learn. This reflects the accumulated achievement of education in spreading literacy.  
3. Youth literacy rate: Youth literacy rate is the percentage of literates in the age group 15-24 years. This indicates the accumulated achievement of literacy programmes in imparting literacy skills to people. This is the potential for intellectual growth and contributes to the socio-economic development of society.                                                                                                                                                                                           

Over the years, the educational level increased for the adult and youth population in India, but still, the number of illiterates is as much as the population was at the time of independence.

The pattern of educational opportunities and attainment across states can be associated with the level of government expenditure allocated in different states. The percentage of government expenditure on education of the total government expenditure shows the importance of education in government programmes. During 1952-2014, the allocation of educational expenditure as a percentage of total government expenditure increased from 7.92% to 15.7% and as a percentage of GDP increased from 0.64% to 4.13%.

In 2014-15, the per capita public expenditure on elementary education differs by states it was Rs 34,651 in Himachal Pradesh and Rs 4088 in Bihar. It is evident from the fact that the allocation of educational expenditure in Himachal Pradesh was very high as compared to Punjab. Thus, it brings regional differences in educational attainment in India. 

Human development is a broader term as compared to human capital because

1. Human capital focused on increase in labour productivity through investment in education and health. On the other hand, human development focused on all the factors which help develop economic and social welfare of the economy.
2. Human capital states that any investment in education and health may be unproductive if it is unable to increase the quantity of goods and services. While human beings are ends in themselves from the perspective of human development, basic education and health are essential in themselves irrespective of their contribution to productivity.  

Factors which contribute to human capital formation:

1. Expenditure on education: Expenditure on educational investment enables one to develop intellectual skills, earn higher income, make better choices in life and provides knowledge to understand the changes taking place in society to stimulate innovation. It provides better social standing and pride. It not only enables to have higher earning capacity but also helps seek highly valued benefits. The quality of human resources is determined by the level of expenditure on education. So, higher the educational expenditure, faster is the growth of human capital formation for economic development of a nation.
2. Expenditure on health: The role of health in the development of human capital is vital. To prevent a population from being a liability on a country, the government must pay adequate attention towards the health of the public. This is possible only with government expenditure on health infrastructure. Educated people will spend on their child's health and education, thus providing the nation with a bright future. The level of income earned increases with the expenditure on health because the productive capacity of the working population depends on health expenditure. Over the last few decades, India has developed health infrastructure and manpower at all levels of government and private health care centres. This enables to progress in improving the health of the population.
3. On-the-job training: Expenditure on on-the-job training is a source of human capital formation because it provides return in the form of increased labour efficiency and productivity. The benefits of training are more than the cost of training given to workers.
4. Migration: People migrate from one place to another in search of better jobs and higher earnings than a previous job. Mostly people migrate from rural areas to urban areas or from one country to another country to receive good returns for their work. It involves the cost of transport and cost of living in different places. However, people tend to migrate as the benefit is higher than the cost of migration. In this way, spending on migration can be considered a source of human capital formation.
5. Expenditure on information: Many people acquire information about the demand for the product and ways to acquire efficient skills to improve productive efficiency. This enables the producer to satisfy the consumer's demand and optimise the productivity level. However, the actual potential productivity will be higher than the cost of acquiring information. Thus, expenditure on information of market condition and specialised skills contribute to human capital formation.

Government organisations incur huge investments to facilitate the functioning of schools and hospitals. As the poor are unable to afford higher prices for obtaining these services from the private sector, the government facilitates their availability at subsidised rates for the poor. The government of India regulates schools and hospitals in the following ways:

Organisations which regulate and monitor education at the national level:

1. National Council of Education Research Training (NCERT): This organisation is involved in designing study material up to the senior secondary level.
2. All India Council for Technical Education (AICTE): This organisation implements rules and regulations related to technical education.
3. University Grants Commission (UGC): This organisation raises funds for university education and implements rules and regulations for higher education.

Organisations which regulate and monitor health:

1. Indian Council for Medical Research (ICMR): This organisation implements rules and regulations related to education in the health sector.
2. National Institute of Health and Family Welfare (NIHFW): This organisation is committed to provide public health, family welfare and health management system more efficiently and effectively. 

Education is considered an important input for the development of a nation in the following ways:

1. Development of skills: Education plays an important role in improving skills which are required to enhance the productivity level. It helps develop skills and impart training to increase production. It facilitates the use of innovative ideas and ability to adapt to changes in science and technology. Thus, the use of skilled workers in production paved the way towards sustainable economic development.
2. Development in mental ability: Decision-making ability and mental abilities of an individual are developed through continuous investment in education. It develops the ability to make right choices of the available resources in the economy. This leads to efficient use of resources resulting in higher productivity. Thus, education prepares individuals as human resources for a nation.
3. Modernisation: The education system focuses on increasing productivity of human resources with technical progress at all levels of work. It increases the receptivity of people to modern and scientific ideas. Since independence, the number of technical and professional educational institutions increased to a great extent. Thus, the use of advanced technology in the production process becomes easier with suitable educational system.
4. Social awareness: The educational system establishes social awareness among people. It helps identify the available natural and human resources present in the economy which lead to higher production and thus economic growth.  
5. Increase in the standard of living: Higher expenditure on education increases the efficiency of the labour productivity as they become skilled in their jobs. An educated person possesses higher productivity and efficiency and therefore has a relatively higher income earning capacity. The higher income and greater access to modern techniques with rise in the education level raises the standard of living and quality of life in the nation. 
6. Increase in participation rate and equality: An individual with the capacity to obtain knowledge and specialised skills provides higher employment opportunities. This enhances the productive efficiency and the rate of participation of workers in economic, social and political activities. This high rate of participation implies the high degree of economic and social equality in a nation. 

1. Health infrastructure: The role of health in the formation of human capital is vital. To prevent the population from being a liability to a country, the government must pay adequate attention towards the health of the public. This is possible only with government expenditure on health infrastructure. Educated people will spend on their child's health and education, thus coming up with a bright future for the nation. The level of income earned increases with expenditure on health because the productive capacity of the working population depends on health expenditure. Over the last few decades, India has developed health infrastructure and manpower at all levels of government and private health care centres. This enables to progress in improving the health of the population.
2. Expenditure on migration: People migrate from one place to another in search of better jobs and higher earnings than the previous job. Mostly people migrate from rural areas to urban areas or from one country to another country to receive good returns for their work. It involves the cost of transport and cost of living in different places. However, still people tend to migrate as the benefit is higher than the cost of migration. In this way, spending on migration can also be considered a source of human capital formation. 

Information related to educational institutions, employment level, wages and availability of health facilities is essential as it is an integral part of human capital. The productivity of labour can be enhanced by information related to educational institutions which offer specialised skills. The government can take required steps to improve the educational system and spread awareness programmes to educate people. If there is proper information on the cost and benefits of the available educational institutions, it enables people to choose the right institution to educate and improve their skills according to the requirement of the job market.   

Health is one of the important sources of human capital formation. The various forms of medical facilities available in society enable a person to remain active, healthy and enthusiastic in production activities. A healthy population can make optimum contribution to the development of the nation. Expenditure on preventive and curative medicine and provision of clean drinking water and sanitation determine the health status of people. However, the actual potential productivity level will be higher than the cost of acquiring information on hospital facilities provided by the government and other private institutions.  

So, information relating to education and health becomes an essential source of human capital formation. If the government provides proper and accurate information regarding the status of education and health facilities in the economy, then it becomes easier for policy makers to formulate policies to benefit human capital formation.

Investment in human capital plays a vital role in economic growth in the following ways:

1. Development of skills: Education plays an important role in improving skills which are required to enhance the productivity level. It helps develop skills and imparts training to increase production. It facilitates the use of innovative ideas and the ability to adapt to changes in science and technology. Thus, the use of skilled workers in production paved the way towards sustainable economic development.
2. Increase in productivity: Physical capital such as buildings, equipment and machinery is important for increasing the quality and quantity of production. However, using these resources effectively is more important for the rise in productivity and capital value. Human resource plays the most crucial role and without which it is not possible to innovate, use and upgrade physical capital for economic development. Educational investment provides higher quality of human resources to increase the level of production.
3. Development in mental ability: Decision-making ability and mental abilities of an individual are developed through continuous investment in education. It develops the ability to make right choices of the available resources in the economy. This leads to efficient use of resources resulting in higher productivity. Thus, education prepares individuals as human resources for a nation.
4. Modernisation: The education system focuses on increasing productivity of human resources with technical progress at all levels of work. It increases the receptivity of people to modern and scientific ideas. Since independence, the number of technical and professional educational institutions increased to a great extent. Thus, the use of advanced technology in the production process becomes easier with suitable educational system.
5. Increase in the standard of living: Higher expenditure on education increases the efficiency of the labour productivity as they become skilled in their jobs. An educated person possesses higher productivity and efficiency and therefore has a relatively higher income earning capacity. The higher income and greater access to modern techniques with rise in the education level raises the standard of living and quality of life in the nation. 
6. Increase in participation rate and equality: An individual with the capacity to obtain knowledge and specialised skills provides higher employment opportunities. This enhances the productive efficiency and the rate of participation of workers in economic, social and political activities. This high rate of participation implies the high degree of economic and social equality in a nation. 

Yes, there is a downward trend in inequality world-wide with a rise in average education levels. Education imparts knowledge and technical skills which enhance the productivity of an individual. An educated person is efficient with higher productivity and therefore has a relatively higher income earning capacity. This leads to higher acceptability of advanced techniques with an increase in the average education level across the world and has raised the standard of living of developing nations. Distribution of income has become less skewed, and income inequality between the rich and poor is decreasing across the world with better earning opportunities available with an increase in the educational level. There are many positive social and economic effects on investing in the education sector. The governments of various nations have made huge investments in the education sector. This increases the education level and not only reduction in inequality but also other related problems such as poverty, unemployment and under utilisation of resources.

Education plays an important role in the economic development of a nation in the following ways:

1. Development of skills: Education plays an important role in improving skills which are required to enhance the productivity level. It helps develop skills and impart training to increase production. It facilitates the use of innovative ideas and ability to adapt to changes in science and technology. Thus, the use of skilled workers in production paved the way towards sustainable economic development.
2. Increase in productivity: Physical capital such as buildings, equipment and machinery is important for increasing the quality and quantity of production. However, using these resources effectively is more important for the rise in productivity and capital value. Human resource plays the most crucial role and without which it is not possible to innovate, use and upgrade physical capital for economic development. Educational investment provides higher quality of human resources to increase the level of production.
3. Development in mental ability: Decision-making ability and mental abilities of an individual are developed through continuous investment in education. It develops the ability to make right choices of the available resources in the economy. This leads to efficient use of resources resulting in higher productivity. Thus, education prepares individuals as human resources for a nation.
4. Modernisation: The education system focuses on increasing productivity of human resources with technical progress at all levels of work. It increases the receptivity of people to modern and scientific ideas. Since independence, the number of technical and professional educational institutions increased to a great extent. Thus, the use of advanced technology in the production process becomes easier with suitable educational system.
5. Increase in the standard of living: Higher expenditure on education increases the efficiency of the labour productivity as they become skilled in their jobs. An educated person possesses higher productivity and efficiency and therefore has a relatively higher income earning capacity. The higher income and greater access to modern techniques with rise in the education level raises the standard of living and quality of life in the nation. 
6. Increase in participation rate and equality: An individual with the capacity to obtain knowledge and specialised skills provides higher employment opportunities. This enhances the productive efficiency and the rate of participation of workers in economic, social and political activities. This high rate of participation implies the high degree of economic and social equality in a nation. 

Expenditure on education enables one to make better choices in life and provides knowledge to understand the changes taking place in society to stimulate innovation. Investment in education stimulates economic growth in the following ways: 

1. Development of skills: Education plays an important role in improving skills which are required to enhance the productivity level. It helps develop skills and impart training to increase production. It facilitates the use of innovative ideas and ability to adapt to changes in science and technology. Thus, the use of skilled workers in production paved the way towards sustainable economic development.
2. Increase in productivity: Physical capital such as buildings, equipment and machinery is important for increasing the quality and quantity of production. However, using these resources effectively is more important for the rise in productivity and capital value. Human resource plays the most crucial role and without which it is not possible to innovate, use and upgrade physical capital for economic development. Educational investment provides higher quality of human resources to increase the level of production.
3. Development in mental ability: Decision-making ability and mental abilities of an individual are developed through continuous investment in education. It develops the ability to make right choices of the available resources in the economy. This leads to efficient use of resources resulting in higher productivity. Thus, education prepares individuals as human resources for a nation.
4. Modernisation: The education system focuses on increasing productivity of human resources with technical progress at all levels of work. It increases the receptivity of people to modern and scientific ideas. Since independence, the number of technical and professional educational institutions increased to a great extent. Thus, the use of advanced technology in the production process becomes easier with suitable educational system.
5. Increase in the standard of living: Higher expenditure on education increases the efficiency of the labour productivity as they become skilled in their jobs. An educated person possesses higher productivity and efficiency and therefore has a relatively higher income earning capacity. The higher income and greater access to modern techniques with rise in the education level raises the standard of living and quality of life in the nation. 
6. Increase in participation rate and equality: An individual with the capacity to obtain knowledge and specialised skills provides higher employment opportunities. This enhances the productive efficiency and the rate of participation of workers in economic, social and political activities. This high rate of participation implies the high degree of economic and social equality in a nation. 

Expenditure on on-the-job training is a source of human capital formation. Benefits of training are more than the cost incurred in training workers. Generally, senior and experienced workers in the organisation provide on-the-job-training to junior workers. Information bringing out the need for on-the-job training for a person:

1. It provides return in the form of increased labour efficiency and productivity.
2. It increases the accessibility of people to modern and scientific ideas.
3. It increases the efficiency and ability of people to absorb new technology.
4. It helps in reducing the wastage of time and money and thus ensures optimal utilisation of resources.
5. It helps in reducing the burden of the supervisor.
6. It makes employees better equipped to face new challenges and deal with various situations and problems.
7. It enables to handle complex machines in a more efficient manner and hence reduces the occurrence of accidents. 

Human capital and economic growth are positively related with each other. Human capital refers to the stock of productive skills and technical knowledge embodied in labour. If the people are well-educated, skilled, well-nourished and healthy, it enhances the productivity level and serves as a source of human capital formation. Economic growth refers to an increase in the real national income of a country. During the Seventh Five Year Plan, India recognised the importance of human capital in economic growth. A largely trained population who has been educated on sound lines can be an asset for the growth of an economy. Human capital plays the most crucial role and without which it is not possible to innovate, use and upgrade physical capital for economic growth. Educational investment provides higher quality of human resources to increase the level of production. An improvement in the stock of human capital helps accelerate economic growth. However, higher economic growth helps improve the process of human capital formation. Thus, human capital and economic growth are interdependent.

A lack of gender parity and equality in education is often a critical factor in under development. Generally, women concentrate more on the so-called soft subjects, while a greater proportion of men complete science and engineering programmes, thus placing themselves in different segments of the labour market. These differences in the typical gender-based selection of study fields are reinforced in the labour market. Men are totally absorbed in highly paid work and women are left with low paid work and taking care of domestic responsibilities such as cooking, cleaning and washing. Gradually, the difference in literacy rates between male and female were narrowed down, indicating a positive development for gender equity. The need for promoting women's education is important because

1. It helps improve economic independence of women and saves them from exploitation and domestic violence.
2. It enhances the social status of women, and hence, the quality life of women can be improved.
3. It enables to improve the health care of women and children and thus contributes to human capital formation.
4. It helps understand the importance of education to children and their family.
5. It helps promote family welfare programmes, and hence, population growth is controlled. 

Public and private institutions function in the health and education sectors. Functioning of these institutions needs to be monitored by the different forms of government intervention because

1. Poor people cannot afford to have the health and education facilities provided by the private sector because of high costs. So, the government needs to provide these services to the poor at lower costs.
2. Health and education facilities provided by private institutions are mainly located in urban areas. It is the responsibility of the different governments to encourage private firms to provide health and education services in rural areas.

Thus, government intervention is important to improve and maintain the education and health status of a country.

Main problems of human capital formation in India:

1. Increasing population: An increase in population has adverse effect on the quality of human capital in developing countries such as India. This leads to reduction in per head availability of existing services such as employment, education, health care, sanitation, housing, electricity, transport as well as nutrition.
2. Poverty: People who live below the poverty line cannot afford basic education and healthcare facilities. This is one of the main problems of human capital formation in India.
3. Migration: Highly educated individuals migrate from one place to another for finding better employment opportunities. Economic growth and development is negatively affected by this migration of highly skilled labour.
4. Inappropriate planning: Inappropriate planning of human resources in India is the major obstacle in human capital formation. The supply of workforce does not match with the growing demand. There is no effort to maintain the demand and supply of technical labour force and to raise the standard of education. This has increased the rate of unemployment in the country.
5. Low quality of health and education facilities: Most of the health and education institutions provide inferior quality of education and health facilities. This negatively affects human capital formation. 

Yes, it is essential for the government to regulate the fee structure in education and health care institutions in India. Human capital is formed with the help of education and health.

Private institutions provide education and health care facilities in India. The main motive of these institutions is profit maximisation. The cost of education and health care facilities provided by private institutions is relatively higher.

Poor people cannot afford the health and education facilities provided by these private institutions because of their higher costs. So, the government needs to regulate the fee structure so that the poor can afford education and health care facilities. Thus, the government needs to regulate the fee structure in education and health care institutions for enhancing human capital formation.