Class 11 Economics Notes Chapter 5 (Human capital formation in india) – Indian Econimoc Development Book

Alright class, let's delve into Chapter 5: Human Capital Formation in India. This is a crucial topic, not just for your exams, but for understanding India's economic development trajectory. Pay close attention.

Chapter 5: Human Capital Formation in India - Detailed Notes

1. Introduction: What is Human Capital?

• Human Capital: Refers to the stock of skill, ability, expertise, education, and knowledge embodied in the people of a country at a point in time. It represents the productive capacity of human beings.
• Human Capital Formation (HCF): The process of adding to the stock of human capital over time. It involves acquiring and increasing the number of people who have the skills, education, and experience crucial for the economic and political development of a country.
• Why is it Important? Human capital is considered a vital input for economic growth. Skilled and knowledgeable individuals are more productive, innovative, and adaptable, driving economic progress. It transforms human beings from passive agents into active agents of development.

2. Sources of Human Capital Formation

Investing in people yields returns, much like investing in physical capital. Key sources or ways of forming human capital include:

• a) Expenditure on Education:
  • This is the most significant way to enhance and enlarge a productive workforce.
  • It increases skills, knowledge, and understanding, leading to higher productivity and earning potential.
  • Includes spending by individuals, families, and the government on all levels of education (school, higher education, vocational training).
• b) Expenditure on Health:
  • "A sound mind in a sound body." Health expenditure is crucial for HCF.
  • A healthy workforce is more productive and efficient. Poor health reduces working capacity and days.
  • Includes expenditure on:
    • Preventive medicine: Vaccination, sanitation, clean drinking water.
    • Curative medicine: Medical intervention during illness.
    • Social medicine: Spreading health literacy.
    • Provision of nutritious food.
• c) On-the-job Training:
  • Firms often provide training to their employees to enhance specific skills relevant to their jobs.
  • This can be done in-house or by sponsoring employees for external training programs.
  • Increases efficiency, productivity, and adaptability of the workforce. Firms incur costs but benefit from increased output.
• d) Expenditure on Migration:
  • People migrate in search of better job opportunities and higher salaries.
  • Migration involves costs (transportation, higher living costs in the new location, psychic costs of leaving home).
  • However, the enhanced earnings in the new place often outweigh the costs, making migration a form of human capital investment. This includes both internal and international migration ('brain drain' is a related concept here, where skilled individuals migrate out of the country).
• e) Expenditure on Information:
  • People spend to acquire information relating to the labour market and other markets (e.g., education institutions, skill requirements, pay levels).
  • This knowledge helps individuals make informed decisions about investments in education, training, and choosing jobs with higher returns.

3. Human Capital vs. Physical Capital

4. Human Capital and Economic Growth

• Causality: There's a strong positive correlation and causality between human capital and economic growth. HCF contributes to growth, and growth (higher income) allows for more investment in HCF.
• Mechanisms:
  • Increased Productivity: Educated and healthy individuals utilize physical capital more effectively, leading to higher output.
  • Innovation & Technology: HCF facilitates innovation, invention, and the adoption of new technologies.
  • Higher Participation Rate: Education and health improvements increase the capacity and willingness of people to participate in the workforce.
  • Improved Quality of Life: HCF leads to better health outcomes, informed choices, and overall well-being, which indirectly supports sustained economic activity.
• Empirical Evidence: Studies across countries show a strong link between investments in education/health and long-term economic growth.

5. Human Capital Formation in India: Status and Challenges

• Government Role: The Constitution of India recognizes the importance of education and health. Both Union and State governments invest in these sectors.
  • Regulation: Ministries of Education and Health, NCERT (National Council of Educational Research and Training), UGC (University Grants Commission), AICTE (All India Council for Technical Education) at the national level, and similar bodies at the state level regulate the sectors.
  • Provision: Government runs schools, colleges, universities, hospitals, and dispensaries.
  • Expenditure: Government expenditure on education and health as a percentage of GDP has increased over the decades but is often considered inadequate compared to desired levels (e.g., target of 6% of GDP on education).
• Achievements:
  • Significant expansion in educational institutions and health infrastructure since independence.
  • Improvement in literacy rates, school enrolment ratios, life expectancy, and reduction in mortality rates.
• Challenges:
  • Inadequate Expenditure: Public spending on education and health remains relatively low compared to many other developing and developed nations.
  • Quality Concerns: While access has improved, the quality of education and healthcare services, especially in rural and government-run facilities, is often poor. High pupil-teacher ratios, lack of basic infrastructure.
  • Inefficiency: Poor resource allocation and utilization in the social sectors.
  • High Dropout Rates: Significant number of students drop out before completing schooling, especially at the elementary and secondary levels.
  • Regional and Social Disparities: Significant gaps in access and quality between urban/rural areas, rich/poor, and different social groups (gender, caste).
  • Brain Drain: Migration of highly skilled professionals (doctors, engineers, scientists) to developed countries represents a loss of human capital for India.
  • Mismatch: Often a mismatch between the skills provided by the education system and the skills demanded by the job market.

6. Education Sector in India (Key Aspects)

• Structure: Primary, Secondary, Higher Education (including general, technical, vocational).
• Key Issues: Access, equity, quality, relevance, financing.
• Recent Initiatives: Right to Education (RTE) Act, National Education Policy (NEP) 2020 aims to address many of these challenges with reforms focusing on flexibility, multidisciplinary learning, skill development, and increased public investment.

7. Future Prospects

• India has a large young population ('demographic dividend'), which can be a major asset if equipped with the right education, skills, and health.
• Continued and enhanced investment in human capital formation is essential for achieving higher, sustainable economic growth and improving the overall quality of life.
• Focus needs to be on improving quality, relevance (skill development), equity, and efficiency in the education and health sectors.

Multiple Choice Questions (MCQs)

1. Which of the following is considered a primary source of Human Capital Formation?
   a) Purchase of machinery
   b) Expenditure on education
   c) Building infrastructure like roads
   d) Foreign direct investment

2. Human Capital refers to:
   a) The total population of a country.
   b) The stock of skills, knowledge, and health embodied in people.
   c) The amount of money people possess.
   d) The physical assets owned by individuals.

3. Expenditure on health contributes to Human Capital Formation primarily by:
   a) Increasing the number of hospitals.
   b) Increasing the productivity and efficiency of the workforce.
   c) Reducing the cost of medicines.
   d) Providing jobs in the healthcare sector.

4. Which regulatory body oversees higher education (universities) in India?
   a) NCERT
   b) AICTE
   c) ICMR
   d) UGC

5. 'Brain Drain' refers to:
   a) Loss of memory due to old age.
   b) Damage to physical capital.
   c) Migration of skilled professionals from a country.
   d) Lack of funding for research institutions.

6. How does Human Capital differ from Physical Capital?
   a) Human capital is tangible, while physical capital is intangible.
   b) Human capital is inseparable from its owner, while physical capital is separable.
   c) Human capital depreciates faster than physical capital.
   d) Human capital formation is purely an economic process, unlike physical capital.

7. Investment in 'On-the-job training' is undertaken mainly by:
   a) Government
   b) Individuals seeking jobs
   c) Firms/Employers
   d) Educational institutions

8. Which of the following is NOT a major challenge for Human Capital Formation in India?
   a) High quality of education across all regions
   b) High dropout rates in schools
   c) Inadequate public expenditure on health
   d) Regional and gender disparities in literacy

9. Expenditure on acquiring information about labour markets is considered a source of Human Capital Formation because:
   a) It increases newspaper sales.
   b) It helps individuals make better career and investment choices.
   c) It directly improves a person's health.
   d) It is mandated by the government.

10. The strong positive relationship between Human Capital Formation and Economic Growth suggests that:
    a) Countries with higher GDP automatically have better education.
    b) Investing in education and health can lead to higher economic growth.
    c) Physical capital is no longer important for growth.
    d) Economic growth has no impact on human capital.

Answer Key:

1. b
2. b
3. b
4. d
5. c
6. b
7. c
8. a
9. b
10. b

Make sure you understand the concepts behind each source of human capital and the challenges India faces. This forms the foundation for understanding policies aimed at leveraging our human resources for national development. Any questions?