Just as a country can turn physical resources
like land into physical capital like factories,
similarly it can also turn human resources like
students into engineers and doctors.
Societies need sufficient human capital in
the first place-In the form of competent
people who have themselves been
educated and trained as professors and
other professionals. This means that we need
investment in human capital out of human
Points of Difference Physical Capital Human Capital
Physical Construction It has physical
construction. It can be
seen, touched and easily
It is intangible and it is not
sold. Only its services are
Separation It is separable from its
It cannot be separated
from its owners.
Building It can be built by imports
It is built by conscious
policy formulation of
state and its expenditure.
Nature of Benefits It creates private benefit. It creates both private
and social benefits.
Mobility Completely mobile
subject to artificial trade
restriction placed at
It is not perfectly mobile.
It is restricted by
nationality and culture.
Human Capital Human Development
Human capital consider
education and health as a
means to increase labour
Human development considers that
education and health are integral to
human well-being because only
when people have the ability to read
and write and the ability to lead a
long and healthy life, they will be
able to make other choices which
Human capital treats human
beings as a means to an end; the
end being the increase in
productivity. Any investment in
education and health is
unproductive if it does not
enhance output of goods and
Human welfare should be increased
through investments in education
and health even if such investments
do not result in higher labour
productivity. Therefore, basic
education and basic health are
important in themselves, irrespective
of their contribution to labour
Spending on education by individuals is
similar to spending on capital goods by
companies with the objective of
increasing future profits over a period of
Likewise, individuals invest in education
with the objective of increasing their
Health is important for the development of an
Medicines, provision for clean drinking water
and good sanitation are various forms of
Health expenditure directly increases the
supply of healthy labour force and is, thus, a
source of human capital formation
Firms spend on giving on-the job-training to their workers. This
may take different forms:
The workers may be trained in the firm itself under the
supervision of a skilled worker.
The workers may be sent for off-campus training.
In both these cases firms incur some expenses. Thus they insist
that the workers should work for a specific period of time, after
their on-the-job training, during which it can recover the
benefits of the enhanced productivity owing to the training.
Expenditure regarding on-the-job training is a source of human
capital formation as the return of such expenditure in the form
of enhanced labour productivity is more than the cost of it.
People migrate in search of jobs that fetch them
higher salaries than what they may get in their native
Unemployment is the reason for the rural-urban
migration in India. Technically qualified persons, like
engineers and doctors, migrate to other countries
because of higher salaries that they may get in such
Migration in both these cases involves cost of transport,
higher cost of living in the migrated places and psychic
costs of living in a strange socio-cultural setup.
The enhanced earnings in the new place outweigh the
costs of migration; hence, expenditure on migration is
also a source of human capital formation.
People spend to acquire information relating
to the labour market and other markets like
education and health.
This information is necessary to make
decisions regarding investments in human
capital as well as for efficient utilisation of the
acquired human capital stock.
Expenditure incurred for acquiring information
relating to the labour market and other
markets is also a source of human capital
The government of India has evolved a
national health policy, which lays down stress
on the preventive, promotive and
rehabilitative aspects of life. Healthy
population helps indirectly in the economic
development of the country.
1) All machines, equipments and tools require
men to operate on them. Health is an
essential requirement for making an efficient,
active and competent working force.
2) There is always a sound mind in a sound
We should try our best to improve the health
standards of the citizens eradicate diseases
such as malaria, smallpox, polio, tetanus etc.
Illness is a part of human life so there should
be sufficient number of hospitals and
dispensaries to cure ailing patients.
Health helps indirectly the economic
development by supplying active, energetic
and healthy working force, which activates
the entire production process.
The Average standard of health in India was
very poor on the eve of adoption of planned
Death rate per year=27.4 per thousand
Infant Mortality per year=183 per thousand
Life expectancy=32.45 years(Males)
There was one doctor for every6300 persons,
one nurse for every 4300 persons, one trained
mid-wife for every 60,000 persons.
Education as Human Resource
Human Resource refers to the population of a
country and the efficiency, productivity, skill and
farsightedness of its inhabitants. Education is an
important factor for the development of human
Education improves upon the level of understanding.
It increases the capacity and mental efficiency of
people to produce more.
Technical education develops the efficiency among
the laborers to use highly advanced techniques of
Education modernizes the attitudes and behaviors of
the people which is important for rapid growth of the
1) The Indian government lays emphasis to primary education up to the
age of fourteen years.
2) 80% of all recognized schools at the Elementary Stage are government
run or supported, making it the largest provider of education in the
3) Figures released by the Indian government in 2011 show that there
were 5,816,673 elementary school teachers in India.
4) Education has also been made free for children for 6 to 14 years of age
or up to class VIII under the Right of Children to Free and Compulsory
Education Act 2009.
5) The current scheme for universalization of Education for All is the Sarva
Shiksha Abhiyan which is one of the largest education initiatives in the
a) Secondary education covers children 14–18 which covers
88.5 million children according to the Census, 2001.
b) India's secondary school system is its emphasis on profession
based vocational training to help students attain skills for
finding a vocation of his/her choosing.
c) A special Integrated Education for Disabled Children (IEDC)
programme was started in 1974 with a focus on primary
education. The government started the Kendriya Vidyalaya
project in 1965 to provide uniform education in institutions
following the same syllabus at the same pace regardless of
the location to which the employee's family has been
India's higher education system is the third largest in the world, after
China and the United States.
The main governing body at the tertiary level is the University Grants
Commission (India), which enforces its standards, advises the
government, and helps coordinate between the centre and the
Some institutions of India, such as the Indian Institutes of Technology
(IITs), have been globally acclaimed for their standard of
undergraduate education in engineering.
Six Indian Institutes of Technology and the Birla Institute of
Technology and Science – Pilani were listed among the top 20
science and technology schools in Asia by Asiaweek. The Indian
School of Business situated in Hyderabad was ranked number 12 in
global MBA rankings by the Financial Times of London in 2010 while
the All India Institute of Medical Sciences has been recognized as a
global leader in medical research and treatment.
We know that the labour skill of an educated
person is more than that of an uneducated
person and that the former generates more
income than the latter.
Economic growth means the increase in real
national income of a country; naturally, the
contribution of the educated person to
economic growth is more than that of an
Education provides knowledge to understand
changes in society and scientific
advancements, thus, facilitate inventions and
The enhanced productivity of human beings or
human capital contributes substantially not only
towards increasing labour productivity but also
stimulates innovations and creates ability to
absorb new technologies.
The human capital growth in developing
countries has been faster but the growth of per
capita real income has not been that fast.
There are reasons to believe that the causality
between human capital and economic growth
flows in either directions.
The Seventh Five Year Plan of India says
“Human resources development has
necessarily to be assigned a key role in any
development strategy, particularly in a
country with a large population.
Trained and educated on sound lines, a large
population can itself become an asset in
accelerating economic growth and in
ensuring social change in desired directions.”
Human Capital is undoubtedly superb biological
computer . It enables thinking process . Man has
head start over other species . Men are rational
in their decision making . It requires that the
people must be literate , educated and skilled .
In order to become more efficient and
productive people should be trained , skilled and
professionally qualified .
It is rightly said that the average overall lifetime
earning of a graduate is more than a matriculate.
Increases production - Knowledgeable ,
skilled , qualified persons can contribute their
maximum to the economy . They can
increase production through optimum
utilization of resources .
Increases productivity – It promotes
innovations , creativity and new technology
so that maximum possible time and cost.
Improve quality of life – Human capital
formation focuses on quality of population ,
better the quality of population more will be
the economic growth and development .
Creates positive attributes – People with
positive attributes are more open to
creativity and innovations and are
rational in their decision making .
Life expectancy – Human capital
formation increases the life expectancy
Rising Population-Large size of population adversely
effects the quality of human capital formation.
Larger the population, more capital is required for
the purpose of investment in education and health.
High level of Poverty-Major section of Indian
population living under poverty line finds it difficult to
arrange basic necessities of life. Hence, they cannot
afford quality education and health facilities.
Braindrain-The migration of highly skilled work force
to other countries for better jobs is known as
braindrain. Due to braindrain country loses it’s
qualified and skilled workforce affecting the process
of economic growth.
The Human Development Index (HDI) is a
composite statistic of life expectancy,
education, and income indices to rank
countries into four tiers of human
development. It was created by
economist Mahbub ul Haq, followed by
economist Amartya Sen in 1990,and
published by the United Nations
Longevity-longevity here means life expectancy at
birth. It means the number of years a newly born
baby is expected to live. Life expectancy in India is
Educational attainment-It refers to the educational
attained by the people of the country on an
average basis. The constituents of educational
attainment are the following two variables:
1. Adult Literacy Rate-The rate of people aged 15 or
above who can understand, read and write a short
and simple statement in their everyday life is known
2.Gross Enrolment Ratio-GLR is defined as the
number of students enrolled at different levels of
Real GDP per capita-It is taken as a
measure of the standard of living of the
people of a country.
Life expectancy index+ Educational
attainment index+ Real GDP per capita index
World map by quartiles of Human Development Index
Very High Low
High Data unavailable