The development of human resources means increase in the quality of human beings, which helps in the process of growth and development of the economy.
Physical Capital:
So, It includes all those inputs which are required for further production like plant and machinery factory, buildings, raw material etc and capital is needed to make use of physical resources. Its accumulation is important for economic growth of a country.
That is
Meaning of Human Capital Formation (HCF)
Human capital formation refers to development of abilities and skills among the population of the country.
Human Capital
Human capital formation refers to development of abilities and skills among the population of the country. It is the process of acquiring and increasing the number of persons who have skills, education, experience and knowledge. So we can say that human capital formation is linked with investment in man and his development as creative and productive resources.
Sources of human capital formation
Expenditure on Education: Individuals invest in education to increase their future income and raise the living standard.
Expenditure on health
Poor health and undernourishment adversely affect the quality of manpower. A sick labor, without access to medical facilities, is compelled to abstain from work and there is loss of productivity.
Therefore, expenditure on health is important to build and maintain productive labor force and to improve quality of life of people in the society.
Health expenditure directly increases the supply of healthy labor force and is, thus, a source of human capital formation
Vaccination, medical intervention during illness, Spread of health literacy and provision of clean drinking water and good sanitation are the various forms of health expenditures
On the job training
On-the-Job-Training: As stated earlier, productivity of physical capital is substantially enhanced with the improvement in human capital. Due to this reason, many firms provide on- the-job training to their workers.
It increases the skill and efficiency of the workers and leads to an increase in production and productivity.
Such training has the advantage that it can be provided fast and without much cost.
It is a source of human capital formation as return of expenditure on such training, in the form of enhanced labour productivity, is more than the cost of it.
Expenditure on Migration:
People migrate from one place to another in search of jobs for higher salaries. All the Unemployed people from rural areas migrate to urban areas in search of jobs. Whereas Technically qualified persons (like engineers, doctors, etc.) migrate to other countries because of higher salaries that they may get in such countries.
Migration in both these cases involves two kinds of cost:
Cost of transportation from one place to another; and
Higher cost of living in the migrated places…...
Hence we can say that, Expenditure on migration is a source of human capital formation as it enhance earnings in the migrated place is more than the increase in costs due to migration.
Expenditure on information
Expenditure is incurred to acquire information relating to labour market and other markets.
Information is necessary to make decisions regarding investments in human capital as well as for efficient utilization of the acquired human capital stock…..As It involves amount spent on seeking information about educational institutions, their educational standards and cost of education.
For example: Educational institutes…
Question. How does “Expenditure on Migration” act as a source of human capital formation?
Answer: 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.
Migration in both these cases involves two kinds of cost:
Cost of transportation from ome place to another; and
Higher cost of living in the migrated places.
Expenditure on migration is a source of human capital formation as enhanced earnings in the migrated place is more than the increase in costs due to migration.
Question: How does the following act as a source of human capital formation: (i) Expenditure on Health; (ii) Expenditure on Education
Answer: i. Expenditure on Health: Health - expenditure is a source of human capital formation as it directly increases the supply of healthy labour 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 and there is loss of productivity.
Therefore, expenditure on health is important to build and maintain productive labour force and to improve quality of life of people in the society.
Adequate food and proper nourishment to people, along with adequate health and sanitation facilities leads to qualitative improvement in human capital.
Forms of health Expenditure: The various forms of health expenditures include;
Preventive Medicine Known as vaccination;
Curative Medicine, i.e., medical intervention during illness;
Social Medicine, i.e., spread of health literacy;
Provision of clean drinking water.
Good Sanitation facilities.
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 an uneducated person, which enables him to generate more income than the uneducated person. Economists have stressed the need for expanding educational opportunities in a nation as it accelerates the development process.
Question - How does expenditure on “On the job training” and information act as a source of human capital formation?
Human Capital and Economic Growth
As we know growth is the increase in real national income of a country, So the contribution of an educated person to the economic growth is more than that of an illiterate person. If a healthy person could provide uninterrupted labour supply for a longer period of time, then health is also an important factor for economic growth. Thus, both education and health, along with many other factors like on the job training, job market information and migration increase the income generating capacity of an individual.
HCF Promote Invention, Innovation and Technological Improvement
Difficult to prove causes and effect relation between human capital and economic growth
Enhanced productivity of human beings or human capital contributes substantially not only towards increasing labour productivity but also stimulates innovations and creates ability to absorb new technologies. Education provides knowledge to understand changes in society and scientific advancements, thus, facilitate inventions and innovations. Similarly, the availability of educated labour force facilitates adaptation to new technologies.
So, Due to measurement problem it is Difficult to prove causes and effect relation between human capital and 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; health services measured in monetary terms, life expectancy and mortality rates may not reflect the true health status of the people in a country.
human capital and economic growth flows in either directions. That is, higher income causes building of high level of human capital and vice versa, that is, high level of human capital causes growth of income.
Importance or Role of Human Capital Formation
The physical capital can be created only by means of hard and intelligent work of human beings in the economy.
Hence, human skill and their efforts help in effective utilization of physical capital.
Human capital formation raises the productivity and production as knowledgeable and skilled worker makes better use of the resources.
It also Increase 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.
Inventions, innovations and Technological improvement: The human capital formation stimulates innovations and creates ability to absorb new technologies.
Education provides knowledge to understand changes in society and scientific advancements, which facilities inventions and innovations.
Similarly, the availability of educated labour force facilitates adaptation to new technologies.
Economic development of a country depends on the minds of the people and their changing attitudes towards creating a “will’ for development. As the knowledgeable, skilled and physically fit people are powerful instrument of change in the society... and also investment in human capital helps in changing mental outlook and promotes development of the economy….
Formation of human capital raises life expectancy of the people. Health facilities and availability of nutritive food enable people to love a healthy and long life. This in turn, adds to the quality of life.
The quality of population depends upon the level of education, 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.
It has been observed that educated persons have smaller families as compared to illiterate families. So, spread of education is necessary to control the population growth rate.
Problems of Human Capital Formation (HCF)
Insufficient resources
The resources allocated to the formation of human capital have been much less than the resources required.
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). Massive illiteracy, non-education of many children, poor health facilities are other inefficiencies, which have not been attended to adequately and properly.
Brain Drain
People migrate from one place to another in search of better job opportunities and handsome salaries. It leads to the loss of quality people like doctors, engineers, etc. who have high caliber and are rare in a developing country. The cost of such loss of quality human capital is very high.
High growth of population
The continuous rise in population has adversely affected the quality of human capital. It reduces per head availability of the facilities.
Several imbalances
A greater proprietor of resources have been diverted towards higher education, which is meant for few people as compared to primary and secondary education. Due to this reason, general productivity of the economy has remained low.
Lack of proper manpower planning
There is an imbalance between the demand and supply of human resources of various categories, especially in case of highly skilled personnel. The absence of such balancing has resulted in the wastage of resources.
Weak science and technology
In respect of education, the performance is particularly unsatisfactory in the fields of science and development of modern technology.
Question. What are the main problems of human capital formation in India?
Ans. The various problems of human capital formation are:
Insufficient resources: The resources allocated to the formation of 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). Massive illiteracy, non-education of many children, poor health facilities are other inefficiencies, which have not been attended to adequately and properly.
Brain Drain: people migrate from one place to another in search of better job opportunities and handsome salaries. It leads to the loss of quality people like doctors, engineers, etc. who have high caliber and are rare in a developing country. The cost of such loss of quality human capital is very high.
High growth of Population: The continuous rise in population has adversely affected the quality of human capital. It reduces per head availability of the facilities.
Several imbalances: A greater proprietor of resources have been diverted towards higher education, which is meant for few people as compared to primary and secondary education. Due to this reason, general productivity of the economy has remained low.
Lack of proper manpower planning: There is an imbalance between the demand and supply of human resources of various categories, especially in case of highly skilled personnel. The absence of such balancing has resulted in the wastage of resources.
Weak science and technology: In respect of education, the performance is particularly unsatisfactory in the fields of science and development of modern technology.
Human Capital and Human Development
HUMAN CAPITAL AND HUMAN DEVELOPMENT
Human capital considers education and health as a means to increase labor productivity. Whereas according to human development, Education and Health are integral to human well-being because only when people have the ability to read and write and the ability to lead a long and healthy life, then only they will be able to make other choices which they value.
Human capital treats human beings as a means to increase in productivity. In this view, any investment in education and health is unproductive if it does not enhance output of goods and services.
According to human development perspective, every individual has a right to get basic education and basic health care, irrespective of their contribution to labor productivity. It means, every individual has a right to be literate and lead a healthy life.
Human Capital Formation in India: Great Prospect
We know, Education and health are very important sources of human capital formation. Since, India 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. Accordingly, expenditures on both education and health are to be carried out simultaneously by all the three tiers of the government.
Needs for government intervention
The expenditures on education and health assume great importance on the formation of human capital.
So, it is very important that such expenditure provides positive results. To ensure favorable benefits, Government intervention is important because of following reasons;
The expenditures on education and health make substantial long-term impact 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 institute, 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.
So, the role of government is to ensure that the private providers of these services adhere to be standards stipulated by the government and charge the correct price…...
Regulatory authority
In Education, the ministries of education at the union and state level and departments of education and various organizations like National Council of Education Research and Training (NCERT), University Grants Commission (UGC) and All India Council of Technical Education (AICTE) regulate the education sector.
In Health, the ministries of health at the union and state level, departments of health, and various organizations like Indian Council for Medical Research (ICMR) regulate the health sector.
Education Sector in India
Growth in government expenditure on education…
This expenditure by the government is expressed in two ways
(i) As a percentage of “total government expenditure”
(ii) As a percentage of Gross Domestic Product (GDP)
The percentage of ‘education expenditure of total government expenditure’ indicates the importance of education in the scheme of things before the government.
The percentage of ‘education expenditure of GDP’ expresses how much of our income is being committed to the development of education in the country.
Government spends more on elementary education:
Elementary education takes a major share of total education expenditure and the share of the higher/tertiary education (institutions of higher learning like colleges, polytechnics and universities) is the least.
B. Expenditure on Tertiary Education is Important:
On a average, government spend less on tertiary education. Even if see ‘expenditure per student’ in tertiary education is higher than that of elementary. But it does not mean that the financial resources should be transferred from tertiary to elementary education. As we expand school education, we need more teachers who are trained in the higher educational institution so, expenditure on all level of education should be increased.
C. Difference in educational opportunities across states:
In, 2014-15 the per capita education expenditure differs considerably across states from as high as Rs. 34,651 in Himachal Pradesh to as low as Rs. 4,088 in Bihar, which leads to the difference in the education opportunities and attainment across states.
Inadequate Expenditure on Education
The expenditure on education is very less as compared to the desired level of education expenditure recommended by various committees. About 40 years ago, the Education Commission (1964–66) had recommended that at least 6 per cent of GDP be spent on education so as to make a noticeable rate of growth in education achievements.
Provision of Free and Compulsory Education
The Tapas Majumdar Committee, appointed by the Government of India in 1998, estimated an expenditure of around Rs 1.37 lakh crore over 10 years (1998-99 to 2006-07) to bring all Indian children in the age group of 6-14 years under the purview of school education.
The Government of India enacted the Right of Education Act to make free education a fundamental right of all.
Government of India has also started levying a 2 per cent ‘education cess’ on all Union taxes. The revenues from education cess has been earmarked for spending on elementary education.
The government sanctions a large outlay for the promotion of higher education and new loan schemes for students to pursue higher education
Educational Achievements in India
|
S. No. |
Particulars |
1990 in % |
2000 in % |
2015 in % |
|
1 |
Adult literacy rate (Aged 15+) |
|
|
|
|
|
i. Male ii. Female |
61.9 37.9 |
68.4 45.4 |
81 63 |
|
2 |
Primary completion rate |
|
|
|
|
|
i. Male ii. Female |
78 61 |
85 69 |
94 99 |
|
3 |
Youth literacy rate (Aged 15 to 24) |
|
|
|
|
|
i. Male ii. Female |
76.6 54.2 |
79.7 64.8 |
92 87 |
Generally, educational achievements in a country are indicated in terms of adult literacy level, primary education completion rate and youth literacy rate
Adult literacy level – Refers to the ratio of literate adult population in the country.
In case of males literacy rate increased from 61.9% in 1990 to 81% in 2015
In case of females the literacy rate was just 37.9% in 1990 which increased to 63% in 2015 which is still far below the satisfaction level.
Primary education completion rate - Refers to the percentage of students completing the last year of primary school.
Education for All — Still a Distant Dream:
Though the education level has increased for both youth as well as adults, still the number of illiterates is as much as the population was at the time of independence. In 1950, when the Constitution of India was passed by the Constituent Assembly, it was noted in the Directive Principles of the Constitution that the government should provide free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the Constitution. Had we achieved this, we would have cent per cent literacy by now.
Next is Gender Equity — Better than Before:
The differences in literacy rates between males and females are narrowing signifying a positive development in gender equity; still the need to promote education for women in India is imminent for various reasons
So,
The Indian education pyramid is steep, indicating lesser and lesser number of people reaching the higher education level.
Moreover, the level of unemployment among educated youth is the highest. As per NSSO data, in the year 2011-12, the rate of unemployment among youth males who studied graduation and above in rural areas was 19 per cent. Their urban counterparts had relatively less level of unemployment at 16 per cent. The most severely affected ones were young rural female graduates as nearly 30 per cent of them are unemployed. In contrast to this, only about 3-6 per cent of primary level educated youth in rural and urban areas were unemployed. Therefore, the government should increase allocation for higher education and also improve the standard of higher education institutions, so that students are imparted employable skills in such institutions.
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