Human capital refers to the stock of skill & expertise of a nation at a particular point in time. Here are the human capital formation class 12 notes.
It is the total skills & expertise of engineers, doctors, professors or workers of all types who are engaged or have the capacity and expertise to be engaged in the process of production.
Topics Discussed
Physical Capital
It includes all those inputs which are required for further production like plant & machinery, buildings, machines, raw materials, etc.
Difference between Physical Capital and Human Capital
| Basis | Physical Capital | Human Capital |
| Tangibility | It is tangible & can be easily sold in the market. | It is intangible & cannot be sold in the market. |
| Depreciation | It depreciates with time. | Depreciation in human capital can be reduced by making investments in education & health. |
| Mobility | It is more mobile between countries. | It is less mobile between countries as compared to physical capital. |
| Separation | Physical capital (machinery, etc.) can be separated from its owners. | Human capital (skills, etc.) cannot be separated from owners. |
Human Capital Formation
It is the process of adding to the stock of human capital over time.
Sources/Determinants of Human Capital Formation
Expenditure on Education
Expenditure on education is the most effective way of raising a productive workforce in the country. Education enables an individual to make a good living throughout life.
Most families decide to incur huge expenditures on education even when they have to raise loans, the reason begins the return on such expenditures is substantially large.
Expenditure on Health
“A sound mind in a sound body” is an old saying. Expenditure on health makes a person more efficient & therefore more productive.
A person’s contribution to the production process tends to rise & that person adds more to the nation’s GDP than a sick person.
Expenditure on Information
Information related to job markets & educational institutions offering specialized skills is an important determinant of skill formation. It enables people to actualize their productive potential.
On the Job-Trainings
On-the-job training helps the workers to sharpen their specialized skills. It enables them to raise their level of efficiency which ultimately adds to their productivity.
Firms are always inclined to undertake on-the-job training programmes because returns far exceed the cost of such programmes.
Study Programme for Adults
Other than formal education at the primary, secondary, & university level the government & NGOs organise study programmes for adults to make them proficient in their working areas.
This enhances their productivity & serves as a source of human capital formation.
Migration
Migration contributes to human capital formation as it facilitates the utilisation of inactive skills of people or facilitates better utilization of skills.
Migration involves costs of:
- Transportation from one place to another
- Living in a different social environment
Yet people migrate because the gains of migration (in terms of higher salaries) are greater than the cost of migration.
Role/Importance of Human Capital Formation
Change in emotional & material environment of growth
Human capital formation generates a change in the emotional & material environment of growth.
- The emotional environment becomes conducive to growth as people tend to acquire growth-oriented attitudes and aspirations.
- The material environment becomes helpful to growth as societies now possess a higher number of trained & skilled people to implement the plans of economic growth.
Higher Productivity of Physical Capital
Human capital formation increases the productivity of physical capital as skilled workers can handle the machines better than others.
It enhances productivity and exaggerates the pace of growth.
Innovative Skills
Human capital formation facilitates innovation, the undercurrent of growth & development. The larger the number of skilled personnel greater the possibility of innovation in the areas of production & related activities.
Higher Rate of Participation & Equality
By enhancing the production capacities of the labour force, human capital formation reduces greater employment.
This increases the rate of participation percentage of the labour force participating in the process of production.
The higher the rate of participation greater the degree of economic & social equality in society.
Control of Population Growth
It has been observed that educated people have smaller families as compared to illiterate people. So, the spread of education is necessary to control population growth.
Increases Life Expectancy
Formation of human capital raises the life expectancy of people, and health facilities & availability of nutritious food enable people to live a healthy & long life. This then adds to the quality of life.
Problems Facing Human Capital Formation
Rising Population
The rising population adversely affects the quality of human capital because it reduces the per-head availability of existing facilities like housing, sanitation, hospitals, education, etc.
Reduced availability of the facilities leads to a fall in the capacity to acquire specialised skills & knowledge.
Different Manpower Planning
Not enough efforts have been made to maintain the demand-supply balance of the ever-rising force in the country.
As a result, India is facing an explosive problem relating to graduate employment which is a sad reflection of human power & skills.
Brain Drain
Migration of persons born, educated & trained in India to developed countries is a serious threat to the process of human capital formation in the country.
The people who decide to migrate of persons of high calibre like scientists, engineers, educationists, etc. This is described as a problem of brain drain.
This slows down the process of human capital formation in the economy.
Low Academic Standards
In our country to spread higher education many universities have been opened, unmindful of their academic standards.
Consequently, we have a large army of half-baked graduates & postgraduates whose deficient skills only lowers the level of efficiency & productivity.
Weak Science & Technology
In respect of education, the performance is particularly unsatisfactory in the fields of science & development of modern technology.
Insufficient Resources
The resources allocated to the formation of human capital formation have been very less as compared to the required resources.
Due to this reason, the facilities for the formation of human capital have remained grossly inadequate.
Indian Economy on the Eve of Independence Class 12 Notes
Education
Meaning of Education
Education implies the process of teaching, training & learning (especially in schools & colleges).
It improves knowledge & develops skills. Education is the undercurrent of economic & social change.
However, as compared to other countries, the spread of education in India has not been so encouraging & the literacy rate in the country continues to be very low.
Importance/Objectives of Education
- Education provides responsible citizens.
- It develops science & technology.
- It facilitates the use of natural & human resources in all regions of the country.
- It promotes the cultural standards of citizens.
- It develops human personalities.
- It extends the mental horizon of the people.
Need for Government Intervention in Education & Health
The need for government intervention in education & health primarily arises because of the following reasons:
- These sectors need huge investments with a very high fixed expenditure.
- It is difficult to expect private investors to invest in health & education unless they are allowed to recover their huge costs through the high price of these services.
- People in poor countries like India can’t afford high prices for education & health. As a result, these services would remain beyond the reach of most people unless they are subsidised all directly provided by the government.
Growth of the Education Sector
Expansion of General Education
During the five-year plan, there is a serious expansion of general education. The number of educational institutions providing elementary education has been increased roughly by five times & the number of students has increased.
In 1951, hardly 18% of the total population was literate, but in 2011 the percentage of literate increased to 74%.
Elementary Education
Elementary education covers students from classes 1 to 8 (primary & middle) in the age group of 6 to 14 years.
The number of primary & middle schools has considerably increased. In 1950-51, the number was 2.23 lakhs but in 2015-16, it increased to 12.70 lakhs.
However, because of poverty, the number of admissions is low which is the major reason for education backwardness in our country.
Secondary & Senior Secondary Education
In 1950-51, there were 7.4 thousand secondary & senior secondary level schools with 15 lakh students. In 2015-16, the number of such schools rose to 2.25 lakhs & the number of students went up to 3.2 crores.
Certain schools were also established by the government to provide modern education of good standards to talented rural areas namely Navodaya Vidyalaya and Kendriya Vidyalaya.
Higher Education
After independence, higher education has shown a convincing growth over time. There are 799 universities in the country out of which 44 are central universities.
Also, there are 40 deemed to be universities. The number of students in all the universities is 346 lakhs in 2015-16.
Rural Education
Rural areas have also witnessed the expansion of education. A national rural higher education council has been set up for this purpose.
Under this council, 14 rural education institutions have been functioning. Under these institutions, children of scheduled castes & scheduled tribes get free education in all the states.
Vocalisation of Secondary Education
In 1988, the central government launched a plan to vocationalised secondary education. Under the plan, financial assistance is given to those schools that start vocational courses at a higher secondary level.
By 2012,13, permission was granted to nearly 11 thousand schools in the country to start vocational courses. These courses have been introduced in the areas of agriculture, trade & commodities, engineering, technology, health& medicine.
Why Education is still a Challenge?
There are many reasons for the above question. Some of them are as follows:
Gender biases
There is still a significant gender bias in offering opportunities for education to male & female children. The education system needs a substantial change in the attitudes of the people.
The enrollment ratio is relatively low for female candidates & their dropout ratio is considerably high.
Privatisation
There is a growing trend toward privatisation of education. Being very expensive, private education has widened the gap between access levels for the rich & poor.
Low government expenditure on education
The government has failed to fulfil its commitment to spending nearly 6% of its GDP on education. Actual expenditure has been around 4 to 5% only.
Low rural access level
There is a high degree of disparity in access to education. The access level is considerably low for rural populations as compared to urban.
Inadequate Vocalisation
Education continues to be largely degree-oriented. Throwing millions of educated youth down to the corridors of unemployment exchanges.
A large number of illiterates
India harbours the largest number of illiterates in the world. Presently nearly 36 crore people have been estimated to be illiterate.
This number exceeds even the total population of most countries in the world.
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