Chapter-5 , Human Capital Formation ,Indian Economics
Chapter-5
Human Capital Formation
Physical Capital:-
It includes
all those inputs which are required for
further production like land and building, Plant and machinery, factory etc.
Physical
capital is needed to make use of physical resources
The accumulation
of physical capital is important for the growth of a country.
The ownership
of physical Capital is the outcome of rational decision of the owner. The owner
calculate the of return and decide which investment should be made
The physical
capital formation is an economic and
technical process .
Note
:-physical capital create only private benefits i.e. benefit which arise to
that person who pay the price for the assets
Human Capital:-
It refer to the stock of skills, ability,
expertise talent education and knowledge embodied in the people
Human capital
is needed for effective utilization of physical capital. There is a need for
investment in human capital to produce more human capital
Note : Human
capital creates private benefit as well as social benefits i.e. it provides benefit
to the owner as well as to the society in general. for eg: A healthy person prevent spreading of diseases by maintaining sanitation
Difference between physical capital
and human capital are as follows :-
|
Basis |
Physical Capital |
Human Capital |
|
Nature |
Physical capital is tangible and can be sold
in the markets |
Human
capital is Intangible and can not be sold in the markets |
|
Depreciation |
It depreciate with the passage of time |
Depreciation in human capital can be reduce
by making continuous investment in education and health |
|
Mobility |
It is more mobile between the countries |
It is less mobile between the countries |
|
Separate ownership |
It can be separated from the owner |
It can never be separated from the owner |
Human capital formation :-
HCF refers to
development of abilities and skills
among the population of the country .
It is the process of increasing the no of persons who have the skills knowledge and experience
HCF is
associated with investment in man and his development as productive resources
Sources of capital formation:-
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 man power
depends on the system of education and training of people .
· labour skills of an educated person is always more than the skills
of uneducated person, which enable him to generate more income's . Expanding
education opportunities are needed to accelerate the development of an economy.
· Individuals invest in
education to increase their future.
· Education contributes to economic growth because :-
1.
It increases the earning capacity of people
2.
It enables
people to make better choice
3.
It stimulates
innovation
2.
Expenditure on Health:- Health expenditure is a main
sources
of human capital formation because it increase the supply of healthy Labour
force.
·
Poor health adversely affect the quality of manpower. A
sick labour is compelled to be absent from work and there will be loss of
production.
·
Expenditure
on health is important to maintain production labour adequate food and proper nourishment leads to
improvement in human capital.
·
Expenditure
on health is of following types
a. Preventive medicine
b. Curative medicine i.e during illness
c. Social medicine i.e spread of health Education
d. Provision of safe drinking
water
e. Good sanitation facilities
3.
On the job Training: As
discuss above, the productivity of physical
capital can be enhanced with the improvement in human capital. Due to this
reason many company provide on the job training to their workers
Such training
has the advantage because it can be provided at cheaper create and it increases
the skills and efficiency of the worker
On the job training is of 2 forms
I.
Workers may
be trained in the firm itself .
II.
Workers may
be sent for off campus training.
On the job
training is a source of Human capital formation
because the return (Profit from such training to more than cost of training
4.
Expenditure on Migration : People migrate from
one place to another in search of jobs that gives them higher salaries
Unemployed people
migrate from rural areas to urban areas
in Search of jobs
Qualified people
like doctor or engineers migrate to other
countries because of higher salaries
Migration
involves 2 kinds of cost :-
(1) Cost of Transportation from one place to
another .
(2) Higher cost of living in the Migrated place .
Expenditure
on migration is a sources of HCF if the
increased Earnings in the migrated place is more than the cost of migration .
5.
Expenditure on information : Expenditures
is incurred to acquire information relating to labor markers and other market. It involves amount spent a on seeking information about
educational institutes , their standards and cost of education .
for eg people
want to know the level of salary associated with various types of jobs
Information is necessary to make decisions the regarding investment in human capital
Relation between Human Capital and Economic Growth
Economic growth means increase in Real national income of a country
· The contribution of an educated person economic growth is more
than illiterate person
· A healthy person also contribute to economic growth by providing continuous
labour supply for a longer period of time
· Human capital stimulates innovation and ability to absorb new technology
So we
conclude that there is a direct relation between human capital and economic
growth
HOWEVER it is difficult to prove that increase in
human capital always cause economic growth
Education
measured in terms of years of schooling may not reflect the quality of
education
Health
services measured in monetary terms may not reflect the true health status of
the people
So we can
conclude the increase in human capital not always cause economic growth
Report by deutsche bank and world bank
Report by Deutsche Bank
:-
In its report
“Global growth center” Identifies that India will emerge as one among four growth centers in the world by 2020 .
It state that human capital is the most
important factor for production because increase in human capital is important
for increase in GDP , it state that between 2005 and 2020 40% increase in
average year of education is expected in India .
Report by World Bank :-
The recent
report of world bank “India and the knowledge economy” State that India should
make a change over knowledge economy
If India uses
its knowledge effectively then its per capita income will increase from 1,000
US dollar to 3,000 Us dollar by 2020
It states
that India has all the key factors
for making
this change over like skilled labour, well functioning democracy and effective
science and technology
Conclusion:
The above 2 reports point out that human capital formation in India will
move Indian economy to a higher growth
path
Role of Human capital formation
1. Effective use
of physical capital:- The growth
and productivity of physical capital depends on human capital formation
The physical
capital can be created only by hard and intelligent work of human beings in the
economy
. They human
skills and their efforts are necessary for proper utilisation of physical
capital
2. Higher Productivity
: Human capital formation increases
productivity
because skilled workers make better use of resources .
Increase in
productivity depends on technical skills of the people which can be acquire
only by education and training
3. Innovation
& technological improvements:-
The human capital formation stimulates innovation and creates ability to absorb
new technology Education provides
knowledge to understand the
changes of society .
4. Modernization
of attitude:- The knowledge , skills and physically fitness of the people are powerful instruments for changes in the
society. Economic development of a country depends on the mind of people and
then changing attitude towards society
5. Improve life expectancy:- Human capital formation increases life expectancy of the people,
Health facility and food nutrition unable people to live healthy and long life
.
6. Improve
quality of life:- The quality
of life of people depends upon the life
of education and health .
Human capital formation not only makes people productive and
creative but also transform the life of people
7.
Control of population growth:- It has been observed that educated people have
smaller families as compared to illiterate
families so spread of education necessary to control the population
growth rate .
Problems of human capital formation
(HCF):-
1. Insufficient
Resources :- The resources allocated for human
capital formation have been much less than actually required, Due to this , the facilities of human capital
formation have remained inadequate
2. Serious
inefficiency : There is a lot of wastage of
resources of society because the capability of educated People are either not
made use of (Unemployment) or Under used (Underemployment), Massive illiteracy
and non education of many children are also serious inefficiency
3. Brain Drain:
People migrate from one place to - another in search of better jobs and handsome
salary. It leads to loss of quality people
who have high potential
4. . High rate of population
growth:- The continuous increase in
population has adversely affect the quality of human capital, It reduces per head
availability of facility
5. Imbalances of
Economy :-A greater proportion of resources
have been spent on higher education, as compared to primary and
secondary education and It leads to low
productivity
in the economy
6. Improper
manpower planning: There įs an imbalance between demand and supply of human resource especially skilled labour, it leads to wastage of resource
7. Weak science
and technology :- In respect of
education the performance is Unsatisfactory in the field of science
Regulatory authority
Regulatory authority for Education :-
1. Education Ministry of education at Union and state level
2. Departments of education
3. National Council of educational research and training (NCERT)
4. University grant commission (UGC)
5. All India Council of technical Education (AICPE)
Regulatory
authority for Health :-
1. Ministry of health at Union
and state level
2. Department of health
3. Indian council of medical research (IMCR)
Human Capital V/s Human Development
Ø Human capital consider education and health a tool to increase the
productivity whereas according to human
development education and health are basic parts of human well being because
when people are able to read and write and have healthy life only then they can
make a better choice.
Ø Human capital treats human beings as a tool to increase productivity whereas according
to human development human welfare should
increased by investment in education and health even if such investments
do not result any productivity
Conclusion : so according
to human development every individual has a right to get basic education and
health irrespective of any productivity .
HCF in INDIA
· India is a federal country
with union government, state government and local govt. The constitution of
India mentioned the function to be carried out by each level of government
· Expenditure on education and health are to be carried out by all
the 3 level of the govt.
· Education and health services creates public as well as social
benefit and thus private and public sector both are involve in education and
health .
· Education commission (1964-66) had recommended that at least 6% of GDP
should be spent on education but recently it å just around 4% of GDP
Need for government interference in education and health
Govt. interference in education and health is
necessary because of the following three reasons
1. The expenditure on health
makes the long term impact and they cannot be easily reversed
2. Individual consumer do not have complete information about the
Quality and cost
3. The provider of education and health i.e. private sector may acquire
monopoly power and can exploit the
market
Conclusion:- So role of govt.
in education is Important so that govt. can charge correct price and provide
correct quality
Important Note :-
Basic
education and health (a fundamental
right ) In India a section of population
lives below poverty line and are unable to afford basic education and
health
So it is essential that the govt. should provide education and health free of cost for deserving citizen and to the backward class
Education sector in India
(1) Growth of Govt. expenditure on education:-
A.
As a percentage of gout expenditure:- It indicates the
importance of education in all the schemes of the govt. during 1952-2014 it increases from 7.92 % to 15.7%.
B.
As a percentage of a GDP:-
It indicates the proportion of GDP spent
on education, During 1952-20 14 it
increased from 0.64 to 4.13%
(2) Important points about govt. expenditure on Education :-
A.
Govt spends more on elementary Education : Elementary education (Primary
& Middle school ) takes a major share of total educational expenditure where
as share of higher education is at the
least level .
B.
Tertiary Education is Important: On
an average govt. spends less on tertiary education but Expenditure per student is still high as we
expand school education we need more teachers who are train in higher education
so expenditure on the levels of
education should be increased
C.
Difference in educational opportunity across
Status. In 2014-15 the per capita education expenditure is very high in
Himachal Pradesh i.e. 34,651 where as
very low in Bihar i.e. 4,088.
(3) Provision of free and compulsory Educator:- In 1998, Indian govt. appointed
Tapas Majumdar committee , which estimated an expenditure of Rs 1.37 lakh crore
over the 10 years (1998-2007) to bring all the Indian children with age groups
6-14 in the context of education .
A. In 2009 govt. enacted right education act to make free education a
fundamental right for all the children with age groups 6-14 years.
B. Govt of India has also started imposing 2% education Cess on all
union taxes. This amount will spent on elementary Education
Govt. sanctioned
a large amount for the promotion of higher education with new loan schemes
(4) Educational achievement in India
A. Adult literacy
Rate:- It refers to the ratio of literate
adults population out of total adults in the country
·
In case of
male this rate has increased from 61.9% in 1990 to 81% in 2015
·
In case of
females it has increased from 37.9% in 1990 to 63% in 2015
B. Primary completion
Rate:- It is the percentage of student completing the last year of
primary Schooling
·
In case of
male it has increase from 78% in 1990 to 94% in 2015
·
In case of
female it has increase from 61 % in 1990
to 99% in 2015
C. Youth literacy
Rate:- It is the percentage with age
group 15-24 years who are able to read
and write
·
In case of
males it has increased from 76.6% in 1990 to 92% in 2015
·
In case
of females it has increased from 54.2% in 1990 to 87% in 2015 .
(5). Future prospects of education in India :-
A. Education for
All “Still a dream”:-The literacy
rate
for both adults and youth have increased but the absolute no of
illiterate in India are still very high.
In 1950 the constitution of
India should provide free and compulsory education for all the children with age groups 6-14 years,
if we would done this we achieve 100%
literacy by now .
B. Gender
equity: The difference in literacy rate between males and females are
reducing day by day but women education needs to be promoted more to improve the
social status of women and women
education makes a favorable impact on the health of women and children.
(6) Higher education a few taker:- The Indians education is
indicating that less and less no of people reaching the higher education level .
According to NSSO,
· In year 2011-12 ,out of youth males in rural areas who studied
graduation , 19% are unemployed
· In year 2011-12, out of youth males in urban areas who studied
graduation 16% are unemployed
· Out of young rural female graduates 30% of them are unemployed
· Around 3% to 6% of primary level educated youth in rural and urban both are unemployed
So we can
conclude that govt. need to do more for higher education .
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