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DAVCENTENARYPUBLICSCHOOL,PASCHI
M ENCLAVE
CLASSXI
ECONOMICS
CHAPTER:HUMANCAPITALFORMATIONININDI
A
HumanCapi
t al
Human capi talrefer
st othe stockofski ll
,abil
it
y,expert
ise,educati
on and
knowledgeinanat ionatapointoftime.
HumanCapi
t alFor
mat ion
Humancapi talformationi
sthepr ocessofaddingtothestockofhumancapi tal
over
ti
me.Good human capi tal(l
ike doct
ors,engi
neersetc.)producesother
humancapi tal.Thatis,weneedi nvestmentinhumancapi t
altoproducemor e
humancapi t
al outofhumanresour ces.

HumanCapi
tal HumanDev
elopment

1.Human capit
al consi
der
s educati
on 1.Humandev elopmenti sbasedont he
andheal
thast hemeanst oincr
ease i
dea thateducat i
on and heal t
h are
l
abourpr
oducti
vi
ty. i
ntegr
alt o human wel l-
being.When
peopl
e havet he abil
it
yt or ead and
appl
y t hei
r knowl edge t o der i
ve
maximum benefittheywi l
lbeabl eto
l
eadalongandheal thyl
if
e.

2.Humancapi t
alisanar r
ow concept.It 2.Human dev el
opment is a br oader
tr
eat
s human bei ngs as means t o concept, which consi ders human
achi
evetheendofhi gherproduct
ivi
ty. beings as ends inthemsel ves.The
Theinv
estmentineducat i
onandheal t
h i
nv est
menti n educati
on and heal th
i
sconsiderednon-pr
oduct i
veifitdoes l
eads t o human wel f
are. It i s
notr
esulti
nhigherproducti
vit
y,. consider
ed product
iveirrespecti
ve of
the fact that itresults in higher
producti
vi
tyornot.

SourcesofHumanCapi t
alFormat i
on
1.Expendi tureonEducat ion:Educat i
oni sani mpor tantsour ceofhumancapi tal
formati
onbecause:
a.I tgener atest echnicalski l
lsand t husi mpr oveslabourpr oducti
vi
ty.It
resultsinsustainableeconomi cdev elopment .
b.I tbringsdownbi rthr at
e( BR)l eadingt odecl i
nei npopulati
ongrowthrate.
Asar esultmor eresour cesar eav ai
lableperper son.
c.I tresultsi nsoci albenef i
tssi ncei tspr eadst oot herwhomaynotbe
skil
led.Itleadst ohigherr eturnsi nfuture.
2.Expendi tureon On-t he-JobTr ai
ning:Techni caltr
aini
ngaddst othecapacit
yof
the peoplet o produce mor e.Fi rms gi ve on- t
he-job tr
aining t
oi mprovethe
productiveskill
soft hewor kers.Itenabl est hem toabsor bnewt echnol
ogiesand
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moder nideas. Ont hej obt rainingmayt akedi f

ferentf orms:( a)wor kersmaybe
trainedint hef ir
mi tselfundert hesuper visionofaski lledwor ker( b)wor kersmay
besentf orof f– campust raining.Af tert rai
ningf i
rmi nsistt hatt hewor kers
shoul dwor kf oraspeci fi
cper iodoft ime,sot hatitr ecovert hebenef itsoft he
enhancedpr oduct ivityowi ngt ot het raining.
3.Expendi ture on Heal th:Heal th expendi ture directl
yi ncreases t he suppl yof
heal t
hyl abourf orceand i st her eforeasour ceofhumancapi talf or mat i
on.
Pr eventi
vemedi cine( vacci nat i
on) ,cur ativemedi cine(medi cali ntervent i
ondur ing
i
llness),soci almedi cine( healthl iteracy ),provisionofcl eandr inkingwat erand
goodsani tationar et hev ariousf ormsofheal t
hexpendi t
ure.
4.Mi grati
on:Peopl emi grat ef r
om onepl acet otheot heri nsear chofbet terjob.It
i
ncl udesmi gr ati
onofpeopl ef rom r ur alar east our banar eaandi nternat i
onal
mi grati
onofpr of essional s,t echni calper sonnelandot herski ll
edper sonsf rom
Indiatoot hercount ri
es.
5.Expendi ture on I nfor mat ion:Expendi tur e on acquiring inf ormat ion r egar ding
l
abourmar ketsandot hermar ketsl ikeeducat i
onar eani mpor t
antsour ceof
humancapi t
alf ormat i
on.Peopl eseeki nformat i
onr egar di
ngsal ariesandot her
facili
ti
esav ail
abl eindi fferentl abourmar ketstochoosear ightj ob.Theyal sot r
y
toknow abouteducat ionali nst it
ut i
ons,t heireducat i
onst andar dsandcostof
educat i
on.

Phy
sicalCapi
tal HumanCapi
tal

1.Examples:Machi
nes,
buil
dingsetc. 1.Exampl es:Skil
l,experti
seetc.
2.Itistangi
blei
.e.i
tcanbet ouchedand 2.Iti sint
angiblei.e.itcannotbet ouched
seen. andseen.
3.Itcanbesoldi
nthemarket 3.Itcannotbesol di nthemar ket;onlythe
servicesofhumancapi t
alarehired.
4.Itissepar abl
efr
om itsowner. 4.Itisinseparablefrom itsowner .
5. I ti s compl etely mobile between 5.I ti s not per fectly mobile bet ween
count r
ies. count ri
es.
6.Itcreatesonpr i
vatebenefi
t. Itcreatesbothpr i
vateandsoci al benefi
t.
7.I tdepr eciat
es overt
ime through wear Itgener al
lydepr eciateswi t
h agei ng,but
andt earandchangeoft echnology. depr eci
ati
on can be r educed wi th
continuous inv estment i n heal th and
educat i
on.
8.Itisnotabl etocopewi t
hthechangesi n 8.Itisabletocopewi t
hthechangesi nthe
thetechnol ogy. technology.

Rol
eofHumanCapitalFormati
oninEconomi cGr owth
1.HIGHERPRODUCTI ON -Humancapi talformati
onrai
sespr oduct
ion.Educated
andskil
ledworker
smakebet teruseofr esourceswhi
chincreasest
hepr oduct
ion
intheeconomy .Asar esultthest andardofl i
vi
ngofpeopl eint heeconomy
improv
es.
2.HIGHERPRODUCTI VITY -Itdirect
lyincreasestheef
fi
ciencyandpr oducti
vi
tyof
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thelabourforce.
3.MODERNI ZATIONOFATTI TUDE-I tbringsposi t
ivechangesi ntheoutlookand
att
it
udesoft hewor kingpeople.
4.IMPROVESQUALI TYOFLI FE-I tsignif
icantlyimprovest hequal
ityoftheli
feof
thepeopl e.Thequal ityofl i
feisdirect
lyconnect edwi t
ht helev
elofeducation,
healthandski l
lformat i
onacquiredbt heper son.
5.INCREASESLI FEEXPECTANCY-I traisesl i
feexpectancyast hei
ncreasedhealt
h
expenditureresult
si nhealt
hyandl onglivesf ort
hepeopl e.
6.EQUALI TY-I traisessoci aljusti
cebyi ncreasi
ngt hedegr eeofeconomi cand
soci
al equali
tyinthesoci et
y .

HUMANCAPI TALANDECONOMI CGROWTH

Economi cgrowt hmeanst heincr
easeinreal nationali
ncomeofacountry
.
 Th econt r
ibuti
onofaneducat edpersont ot heeconomi cgrowthismor ethan
thatofani l
li
ter
ateperson.
 Simi l
arl
y,aheal thypersonal socontri
butest oeconomicgrowthbypr ovi
ding
uninter
ruptedlaboursupplyforalongerperiodoft ime.
Thus,botheducat i
onandheal th,al
ongwi t
hmanyot herfact
orsli
keon-t
he-
jobtrai
ning,
j
obmar keti nf
ormationandmi grati
on,incr
easest hei ncomegenerati
ngcapaci
tyofan
i
ndivi
dual.

HCFpr omot esinvent i

ons, i
nnov ati
onsandt echnologicali
mpr ovements
Thehumancapi t alformat i
on( HCF)notonl yincreasest hepr oducti
vit
yofhuman
resources but al so st imulates innovat
ions and cr eates abil
it
yt o absor
b new
technologi
es.
 E ducati
onpr ovi
desknowl edgetounder standchangesi nsocietyandscient
if
ic
advancement s,thus,facil
it
ateinv
entionsandi nnov ati
ons.
 Si mil
arl
y ,
theav ailabi
li
tyofeducat edlabourf or
cef acil
i
tiesadaptati
ontonew
technologies.

Dif
ficult
yt opr oveCauseandEf fectrelationbet weenHumanCapi talandEconomi c
Growt h
Duet omeasur ementpr oblems,i tisdiffi
cul ttoprov ethatincreasei nhumancapi tal
causeseconomi cgrowth.
 Forexampl e,educationmeasur edi nter msofy earsofschool i
ng,t
eacher-pupil
r
at i
oandenr olmentr atesmaynotr eflectt hequalit
yofeducat ion.
 Si
mi l
arly,heal t
hser vi
cesmeasur edi nmonet aryt er
ms,l ifeexpectancyand
mor t
alit
yrat esmaynotr eflectthetrueheal t
hst at
usoft hepeopl einacountry.
Itmeans,i tisdi ff
icul
ttoest ablishar elationofcauseandef fectf rom t
hegrowt hof
humancapi t
al( educationandheal t
h)toeconomi cgr owth.Ther elati
onshi
pbet ween
humancapi t
al andeconomi cgr owthf l
owsi neitherdir
ecti
ons.
 Hi gherincomecausesbui l
dingofhi ghl evelofhumancapi t
al;and
 Hi ghlevel ofhumancapi talcausesgr owt hofincome.
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REPORTBYDEUTSCHEBANK

TheDeut schebank( aGer manBank),i

ni t
sr eporton" GlobalGrowthCentres”
,
i
dent i
fi
edthatI ndiawillemer geasoneamongf ourmaj orgrowthcentresinthe
wor l
dbythey ear2020.
I
tf ur
therst
atest hathumancapi tal
ist
hemostimpor t
antfactorofpr
oductioni
n
today'
seconomi cs.Increaseinhumancapi
tali
scrucialt
oachi evei
ncreaseinGDP.

REPORTBYWORLDBANK
Wor l
d Banki ni t
sr ecentr eport,‘I
ndi
aand t heKnowl edgeEconomy– Lev er
aging
Str
engthsandOppor tuni
ties’st
atesthatIndi
ashoul dbecomea‘knowl
edgeeconomy’.I
f
I
ndiausesi tsknowl edgeasef fi
cientl
yasI r
elandpercapi t
aincomemayt r
ipl
ef r
om
$1,000to$3, 000bet ween2005- 2020.
Threeessenti
al advantagesthatIndiahasinthi
sr egardare:
1.Crit
icalMassofSki ll
edWor kers
2.Wel lf
unct i
oningdemocr acy
3.Diversi
fiedscienceandt echnologyinf
rastr
uct ur
e.

HumanCapitalFor mat ioni nI ndi a

 I ndi
ai saf eder alcount ry.Allthet hreeti
ersoft hegov ernment ,namelycent ral
government ,st at egov ernmentandl ocalgov ernment ,incurrexpendi t
ureon
educat i
onandheal thsi mul taneousl y.
 Ther ei st he exi stence ofpr ivate and publici nsti
tutions int he fiel
d of
educat i
onandheal th.Theeducat ionandheal t hservicescreatebot hpr i
vate
andsoci albenef i
ts.
 Gov ernmenti nt ervent i
oni snecessar yint hef iel
dofeducat ionandheal t
h
becauseoft hef ollowi ngr easons:
i.Educat ion and heal th havesubst ant i
allong t er
m ef fect
swhi ch
cannotbeeasi lychanged.I r
reversi
bleandi rr
eparabledamagecan
bedonei fappr opr i
ateser vi
cesarenotpr ovi
ded.
i
i.Theconsumer sdonothav et hecompl et
ei nformat i
onaboutt he
qual ityofser vi
ces and t heircost s.The educat i
on and heal t
h
serv ice pr ov iders enjoymonopol ypowerand of t
en expl oitthe
consumer s.Ther oleoft hegovernmenti st oensur ethattheser vi
ce
prov ider sf ollowedt her equir
edst andar dsandchar get hecor r
ect
price.
 Regul at oryBodi es
o Educat ion:Nat ionalCounci lofEducat i
onalResear ch and Tr ai
ning
(NCERT) , StateCounci lofEducat i
onalResear chandTr aini
ng( SCERT) ,
Universit yGr antsCommi ssion(UGC)andAl lIndiaCounci lofTechni cal
Educat ion( AI CTE) .
o I ndianCounci lforMedi calResear ch( I
CMR)andmi ni
str
iesofheal that
theuni onandst atelevel.
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Educat
ionSect ori nIndi a
th
 The 86 Amendmentoft he I ndi an Const i
tut i
on decl ares t he Ri ghtTo
Educat ion( RTE)asaFundament alRi ght .I tprov i
desf orf reeandcompul sory
educat ionupt ot heageof14y ear s.
 Gov er nmentExpendi tureonEducat i
on
o Gov er nmentexpendi tur eoneducat ionasper cent ageofgov ernment
expendi tur ei ncr eased f rom 7. 92% t o 11. 7% ov ert he t ime per iod
1952- 2012.
o Gov er nmentexpendi tur eoneducat ionasper centageofGDPi ncr eased
from 0. 64%t o3. 31%ov ert hesameper i
od.
o TheEducat i
onCommi ssi on( 1964- 66)r ecommendedt hatatl east6%
ofGDPshoul dbespendoneducat i
on.
o Ther ear er egi onali nequal i
ti
esr egar dingpercapi t
aexpendi t
ur eon
educat ion.I ti sRs.12, 500i nHi machalPr adeshandonl yRs.2200i n
punj ab.
o ‘ Educat i
onCess’ :I n2004- 05cent ralgov er nmentl ev i
eda2%‘ educat ion
cess’onal luni ont axes.Ther evenueofRs.4, 000– 5, 000Cr ores
col l
ect edf r
om i tist out il
izedf orel ement aryeducat ion( Sar vaShi ksha
Abhi yan) .
 Per formanceofEducat ionSect or
o Pr imar ycompl et ionr at ef ormal ei ncreasedf rom 78% t o96. 6% f r
om
1990- 2012.Forf emal esi ti ncreasedf r
om 61%t o96. 3%ov ert hesame
per i
od.
o Yout hl iteracyr ate( 15- 24agegr oup)f ormal eincr easedf rom 76. 6%t o
88%f rom 1990- 2012.Forf emal esi tincreasedf rom 54. 2%t o74%ov er
thesameper iod.
o Adul tl i
ter acyr at ef ormal ei ncr easedf r
om 61. 9%t o76. 7%f rom 1990-
2012.Forf emal esi ti ncr easedf rom 37. 9% t o67. 6% ov ert hesame
per i
od.
 GENDEREQUI TY
o Genderequi tyi sbet tert hanbef ore.Thedi f
ferencei nl iteracyr ates
among mal es and f emal es ar e nar rowing si gni f
ying a posi ti
ve
dev elopmenti ngenderequi ty.
 Women’ seducat ioni si mpor tantf ort hef ollowingr easons
1.I timpr ov eseconomi ci ndependenceandsoci al statusofwomen.
2.I thasf av our ablei mpactonr educi ngt hef erti
li
tyr ateandi mpr oved
heal thcar eofwomenandchi ldr en.
3.I timpr ov est heeducat ionl eveloft hef ami ly.‘Educat eamanandy ou
educat eoneper son.Educat eawomanandy oueducat eonef ami ly .
’

 Hi
gherEducat
ion—aFewTaker
s:

  TheI
ndianeducat
ionpyramidissteep,
 
indi
cat
inglesserandlessernumberof
peopl
ereachi
ngthehighereducat
ionlevel
.Moreov
er,thelev
el of
unemploymentamongeducatedyout hi
sthehi
ghest.Thegov ernmentshoul
d
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i
ncreaseal
l
ocati
onforhi
ghereducati
onandal
soimprov
et hest
andar
dofhigher
educati
oni
nst
it
uti
ons,sothatst
udentsar
eimpar
tedemployabl
eski
ll
sinsuch

i
nst
it
uti
ons .
Pr
obl
em ofHumanCapi t
alFor mationinIndia
1.Risi
ngpopul ati
on:Ri singpopul ati
onr educespercapi taavail
abil
it
yofex ist
ing
faci
lit
ies.
2.Long Ter m Pr ocess:Thehumancapi t
alf or
mationisal ongt er
m andsl ow
processasski llformat i
ontakest i
me.
3.Therei shi ghregional andgenderi nequali
tyinhumancapi t
alformation.
4.Braindr ain(mi grati
onofski lledlabourforcefrom Indi
at odevelopedcountri
es)
adversel yaffectsthepr ocessofhumancapi talfor
mat i
on.
5.Agricultureisf i
ndingdi ffi
cultyinabsorbingnewt echnologi
esduet ol ackofon-
the-
jobt raini
ng.
6.Duet ohi ghpov ertylev el
sal ar
gepr oporti
onofpeopl edonothav eaccesst o
educat i
onal andheal thf aci
li
ti
es.

MCQS

1.Whichoneoft hefoll
owingisnotanexampleofphysicalcapi
tal
?
(
a)Machi nery (
b)RawMat eri
al
(
c)Building (
d)Educati
onandknowl edgei
n
people
2.__
_____
_f iv
ey earpl
anrecogni
zedtheimportanceofHumanCapi tal
.
(
a)Sevent h (b)Thir
d
(
c)Eight (
d)Sixth

3.InI
ndi a,whi chofthef oll
owingorganisati
onsr egulatetheheal thsector
?
(a)ICMR (b)UGC
(c)AICTE (d)Noneoft hese
4.Theexpendi tur
ebyt hegov ernmentoneducat i
oni sexpr essesas:
(a)Percent ageoft otalgover
nmentexpendi ture
(b)Per centageofGDP
(c)Both( a)and( b)
(d)Neit her(a)nor( b)
5.Whi choneoft hefollowingisani ndicatorofeducat i
onalachi evementina
country?
(a)Yout hLi t
eracyRat e (b)Adul tLit
eracyRat e
(c)Primar yCompl etionRate (
d)Al l
oft hese
6.Int he year_ ____
_______,Indi
an Gov ernmentmade f r ee and compulsor
y
educat i
onf oragegr oupof6–14y ears.
(a)2001 (b)2002
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(c)2003 (d)2007
7.Whi choneoft hefollowi ngi sar easonf orpoorhumancapi t
alformat i
onin
Indi
a?
(a)Br aindr ain (b)I
nsuf fi
cientr esources
(c)Hi ghgr owt hofpopul at i
on (d)All ofthese
8. _ ___
__ ___ _
__Ref erst ot hest ockofski ll
,abil
it
y,exper t
ise,educat i
onand
knowl edgeembodi edi nthepeopl e.
(a)HumanResour ce (b)Phy si
cal Capi t
al
(c)HumanCapi tal (d)Noneoft hese
9.Whi choneoft hefollowi ngi snotasour ceofhumancapi talf ormation?
(a)Expendi tureonI nfr
ast r
uct ure (b)Expendi t
ur eoneducat i
on
(c)Expendi tureonon- the-job-tr
ai ning( d)Expenditureonmi grat
ion
10.
Howmucheducat ional cesshasbeeni mposedbyt hegov er nmentonal l
uniont axes?
(a)1percent (b)2percent
(c)4percent (d)Noneoft hese
11.
Whati st hef ullfor
m ofI CMR?
(a)Inter nati
onal Counci lofMedi cal Research
(b)Indi anCounci l
ofMedi cal Resour ces
(c)Inter nati
onal Counci l
ofMedi cal Resources
(
d)I ndianCounci lf orMedi calResear ch
12.
Whi choneoft hefollowi ngi samaj orsour ceofhumancapi talformat i
onin
acount ry?
(a)Expendi tureonEducat ion (b)Expendi t
ur eon
I
nf rastructure
(c)Expendi tureondef ense (d)Noneoft hese

VeryShortAnswerTy pe
1.Whatismeantbyphy sicalcapit
al ?
2.Whydoweneedt oinvestinhumancapi tal
?
3.Whatismeantbyhumancapi t
al formation?
4.Howdoesexpendi tureonheal thactasasour ceofhumancapital
?
5.Howi son-t
he-j
obt r
ainingasour ceofhumancapi tal
formati
on?
6.Li
stthesourcesofhumancapi talformat i
oninacountr
y.
7.Li
sttheindi
catorsofeducat ional achi
evementinacount r
y.
8.Howi sexpendi
tureonmi grati
onasour ceofhumancapi t
alf
ormati
on?

Quest
ions
1.Def
inehumancapi
tal
.
2.Whatdoy
ouunder
standbyhumancapi
tal
for
mat
ion?
3.Whatar
emaj
orsour
cesofhumancapi
talf
ormat
ioni
nacount
ry?Expl
aint
hem
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br
ief
ly.
4.Whatar
ethei
ndi
cat
orsofeducat
ional
achi
evementi
nacount
ry?
5.Di
ff
erent
iat
ebet
weenhumancapi
tal
andhumandev
elopment
.
6.Howi
shumandev
elopmentabr
oadert
erm ascompar
edt
ohumancapi
tal
?
7.Namet
hegov
ernmentor
gani
sat
ionst
hatr
egul
atet
heheal
thandeducat
ion
sect
ors.
8.Howdoesi
nvest
menti
nhumancapi
tal
cont
ri
but
etoeconomi
cgr
owt
h?
9.Ex
plai
nhowi
nvest
menti
neducat
ionst
imul
atest
heeconomi
cgr
owt
h.
10.
Bri
ngoutt
heneedf
oron-
the-
jobt
rai
ningf
oraper
son.
11.
Discusst
heneedf
orpr
omot
ingwomen’
seducat
ioni
nIndi
a,
12.
Whati
stheneedf
ort
hegov
ernmenti
nter
vent
ioni
nthef
iel
dofeducat
ionand
heal
th?
13.
Whatar
ethemai
npr
obl
emsofhumancapi
tal
for
mat
ioni
nIndi
a?
14.
Dist
ingui
shbet
weenhumancapi
tal
andt
hephy
sical
capi
tal
.
15.
Whatar
eIndi
a’
sfut
urepr
ospect
sofeconomi
cgr
owt
haccor
dingt
oWor
ldBank?
Whatar
ethr
eecondi
ti
onst
hatar
efav
our
abl
etoI
ndi
aint
hisr
egar
d?
16.
Whi
chamendmentofI
ndi
anConst
it
uti
ondecl
aredt
her
ightofeducat
ionasa
f
undament
alr
ight
?Inwhi
chy
earwast
hisamendmentmade?
17.
‘Thegov
ernmentexpendi
tur
eoneducat
ioni
sver
yinadequat
e.’
Elabor
ate.
18.
Whati
s‘educat
ional
cess’
?
19.
Whati
sbr
aindr
ain?
20.
Discusst
heper
for
manceoft
heeducat
ionsect
ori
nIndi
adur
ing1990-
2000.