Human Capital Formation in India

The two major sources of human capital in a country are investment in education and investment in health. The chapter also mentions other sources like on-the-job training, migration and information, but the main two are education and health.

The chapter says that educational achievements in a country are generally indicated by adult literacy level, primary education completion rate, and youth literacy rate.

We observe regional differences in educational attainment in India because the per capita public expenditure on education differs widely across states and so do educational opportunities and attainments. The chapter gives the example that in 2020-21 per capita public expenditure on elementary education ranged from Rs 96,968 in Sikkim to Rs 10,710 in Bihar. Differences in government spending, access to schools, quality of infrastructure, and social and economic conditions all contribute to these regional gaps.

Human capital and human development differ in their focus:

- Human capital treats education and health as a means to increase labour productivity and income. Human beings are seen as a means to an end, where the end is higher output.
- Human development treats education and health as ends in themselves because they are part of human well-being. Human beings are not just means for production; they have a right to live a healthy life and be literate.

So, human capital is productivity-oriented, while human development is welfare-oriented.

Human development is broader than human capital because it includes not only education and health for raising productivity, but also the idea of human well-being and freedom of choice. In the human development view, basic education and basic health are valuable in themselves, even if they do not directly raise output. Human capital is narrower because it mainly focuses on how education and health improve labour productivity and income.

The factors that contribute to human capital formation are:

1. Education
2. Health
3. On-the-job training
4. Migration
5. Information related to labour, education and health markets

These investments improve skills, health, mobility and decision-making, which increase productivity and income.

Government organisations facilitate schools and hospitals in many ways:

- They frame policies and set standards for education and health services.
- The Union and state governments, along with local bodies, spend on education and health.
- In education, bodies like NCERT, UGC and AICTE help institutions by developing curriculum, regulating higher education and technical education, and maintaining standards.
- In health, bodies like the National Medical Commission and ICMR support and regulate medical education and research.
- The government also ensures that private providers follow standards and charge the correct price, since consumers do not have full information and private providers may otherwise exploit them.
- It provides or supports free or subsidised education and health care for the poor and socially oppressed sections.

Education is an important input for the development of a nation because it:

- raises the skills and productivity of workers;
- increases income-earning capacity;
- improves social standing and helps people make better choices;
- provides knowledge about social changes and scientific developments;
- stimulates innovation;
- helps the labour force adapt to new technologies;
- contributes to economic growth by increasing human capital.

Thus, education promotes both individual development and national development.

The chapter discusses health infrastructure and expenditure on migration as sources of human capital formation:

### (i) Health infrastructure
Spending on preventive medicine, curative medicine, social medicine, clean drinking water and sanitation improves the health of workers. A healthy labour force works more regularly and productively, so such expenditure increases human capital.

### (ii) Expenditure on migration
People migrate to get better jobs and higher salaries. Migration involves costs such as transport, higher living expenses and psychic costs. But if the earnings in the new place are higher, the benefits outweigh the costs. Hence, expenditure on migration is also a source of human capital formation.

People need information about health and education expenditure to use human resources effectively because:

- it helps them know the quality and cost of education and health services;
- it helps them choose the right educational institutions and health facilities;
- it gives information about job salaries and labour-market conditions;
- it improves decisions about where to invest in education, training and health;
- it ensures better utilisation of acquired human capital.

Without information, investment in human resources may be misdirected or wasted.