Chapter-5

Human Capital Formation

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 and Human Capital

Physical capital : It includes all those inputs which are required for
further production ,like plant and machinery ,factory,buildings,raw
materials,etc.
Human capital : It refers to the skills which a person acquires through
training experience adding to his or her value to the production process.

How people become resources :

People become resources by using their skill productivity & abilities. When
human resource is further developed by more educated & healthy.

Meaning of Human Capital Formation(H.C.F)

Human capital formation refers to the process of addition made to the the
stock of the skilled and capable people in the country over a period of time .
In other words , H.C.F refers to developmentof abilities and skills among the
population of the country.
 Sources of H.C.F
1. Expenditure on education.
2. Expenditure on health.
3. On-the-job training.
4. Expenditure on migration.
5. Expenditure on information.

1. 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.
2.Expenditure on health: Health expenditure is the source of human
capital formation as it directly increase the supply of health human force.
Forms of health expenditure-
1- Preventive Medicine known as vaccination .
2- Curative Medicine, i.e medical intervention during illness.
3- Social Medicine , i.e spread of health literacy.
4- Provision of clean drinking water.
5- Good Sanitation Facilities.
3.On-the-job training: On-the-job training may take diferent forms:
1- Workers may be trained in the form itself under the supervision of a
skilled worker.
2- Workers may be sent off-campus training.
4.Expenditue on migration:People migrate from one place to another in
search of jobs that fetch them higher salaries.
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.
5.Expenditure on Information:Expenditure is incurred to acquire
information relating to labour market and other markets.
 Human Capital & Economic Growth
Economic growth means the increase in real national income of the
country.
Importance or Role of Human Capital Formation
1. Effective use of Physical capital.
2. Higher productivity and production.
3. Inventions , innovations and technological improvement.
4. Modernization of attitudes.
5. Increase life expectancy.
6. Improves quality of life.
7. Control of population growth.
Problems of H.C.F
1. Insufficient resouces.
2. Serious ineficiencies.
3. Brain drain.
4.High growth of population.
5. Several imbalance.
6. Lack of proper manpower planning.
7. Weak science and technology.
Human Capital & Human Development
Human capital consider health educaton as a means to increase labour
productivity.
Human development,Education and health integral to human well*being
because only when the people have the ability to read &write and the
ability to lead a long and healthy life they will able to make other choices
which the value.
Regularity Authority
* In education,the ministries of education at the union and state level &
departments of education & various organisations like:
a) National council of educational research and training. (N.C.E.R.T)
b) University grants commision (U.G.C).
c) All indian council of technical education (A.I.C.T.E)
* In Health,the ministries of health at the union and state level ,
depatments of health and various organistion like:
a) Indian council of medical research (I.C.M.R) regulation to health sector.
Education sector in India
(Growth in government expenditure on expenditure)
a) As a percentage of total governament expenditur during (1952-2014) it
increased from 7.92% to 15.7%.
b) As the % of G.D.P(during 1952-2014) it increased from 0.64to 4.13 .
Provision of free & compulsory eduction
The Tapas Majumdar Commitee appointed by Indian government in
1998 estimated on expenditur of around rupees 1.37lakh crore over to 10
year to bring all India children in the age group of 6-14 years under the
purview of achool education.
Educational Achievements in India
Adult literacy rate: Adult literacy rate refers to the ratio of literate adult
population in the country .
Primary complrtion rate: It is percentage of students completing the last
year of primary school.
Youth litearacy rate: It is a percentage of people ages 15-24 years who can
with understanding read & write a short simple statement on their
everyday life.
Future Prospect in educational sector
*Education for all:still a distant dream:- The literacy rate both adult
as well as youth has increased in 1950 the compulsory education for all
children upto the age of 40 years.
*Gender equality better than before:-The difference in literacy rayes
between males and femalesare narrowing .
It indicates the development in gender equality.Women education need to
be promoted.
To improve economic independence & social status of women .
Women education makes a favourable impact on fertility rate & health care
of women & children.
Higher education a few taker
The Indian education pyramid is steep indicating lesser and lesser no,of
people reaching the higher education level.
As per Ntional sample survey office (N.S.S.O) data in the year of
unemployment among the youth males who study graduation & about in
rural areas was 19%. The government need to increase allocation of higher
education,and also improve the standard of higher education institutes, so
that students are imparted employable skill in such a constitutions.