The document discusses key differences between physical capital and human capital. It notes that human capital is intangible, inseparable from its owners, built through policy and expenditure, and creates both private and social benefits. In contrast, physical capital is tangible, separable from owners, can be built through imports, and creates private benefits. The document also compares approaches to human capital and human development, noting human development considers education and health as ends in themselves rather than just means to increase productivity.

4. Pointsof Difference Physical Capital HumanCapital
Physical Construction Ithas physical
construction. Itcan be
seen, touched and easily
sold.
Itis intangible and itis not
sold. Only its services are
sold.
Separation Itis separable from its
owners.
Itcannot be separated
from itsowners.
Building Itcan be built by imports
also.
Itis built by conscious
policy formulation of
state and itsexpenditure.
Nature of Benefits Itcreates private benefit. Itcreates both private
and socialbenefits.
Mobility Completely mobile
subject to artificialtrade
restriction placed at
some places.
Itis not perfectly mobile.
Itis restricted by
nationality and culture.

5. Human Capital Human Development
Human capital consider
education and health as a
means to increase labour
productivity.
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
they value.
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
services.
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
productivity.

6. Education
Health
On-the-Job-Training
Migration
Information

7. 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
time.
Likewise, individuals invest in education
with the objective of increasing their
future income.

8. Health isimportant for the development of an
individual.
Medicines, provision for clean drinking water
and good sanitation are various forms of
health expenditures.
Health expenditure directly increases the
supply of healthy labour force and is, thus, a
source of human capital formation

9. Firms spend on giving on-the job-training totheir workers.This
may take differentforms:
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.
Inboth these cases firms incur some expenses. Thusthey 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.

10. People migrate insearch ofjobsthat fetch them
higher salaries than what they may get in their native
places.
Unemployment isthe 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
countries.
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.

11. People spend to acquire informationrelatingto
thelabour market and other markets like
education and health.
Thisinformation isnecessary to make
decisions regarding investments in human
capital as well as for efficient utilisation of the
acquired human capitalstock.
Expenditure incurred for acquiringinformation
relating to the labour market and other
markets isalso a source of human capital
formation.

12.  The Indian government lays emphasis to primary
education up to the age of fourteen years.
 Education has also been made free for children
for 6 to 14 years of age or up to class VIIIunder
the Right of Children to Free and Compulsory
Education Act 2009.
 The current scheme for universalization of
Education for All is the Sarva Shiksha Abhiyan
which is one of the largest education initiatives
in the world.
PRIMARY EDUCATION

13. Secondary education
a) 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.
b) 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
transferred.

14. Higher education
 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
state.
 Some institutions of India, such as theIndianInstitutesof Technology
(IITs),have been globally acclaimed for their standard of
undergraduate education in engineering.

15. HumanCapital isundoubtedly superb biological
computer . It enables thinking process . Man
has head startover otherspecies . Men are
rational intheirdecision making . Itrequires that
the people mustbe literate , educated and
skilled.
Inorder tobecome more efficient and
productive people should be trained , skilled and
professionally qualified .
Itisrightlysaid thatthe average overall lifetime
earning of a graduate ismore than a matriculate.

16.  Increases production -Knowledgeable ,
skilled , qualified persons can contribute their
maximum to the economy . They can
increase production through optimum
utilization of resources.
 Increases productivity –Itpromotes
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 .

17.  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 lifeexpectancy
of people.

18. Rising Population-Large size of populationadversely
effects the quality of human capital formation.
Larger the population, more capital isrequired 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 isknown as
braindrain. Due to braindrain country loses it’s
qualified and skilled workforce affecting the process
of economic growth.

19. The HumanDevelopment Index(HDI)isa
composite statistic of life expectancy,
education, and income indices to rank
countries into four tiers of human
development. Itwas created by
economist Mahbub ul Haq, followed by
economist Amartya Sen in 1990,and
published by the United Nations
Development Programme.

20. World map by quartiles of Human Development Index
Low
Dataunavailable
VeryHigh
High
Medium

21. INTERNATIONAL COMPARISONS
 Often smaller countries have done better
than larger ones in human development.
 Similarly, relatively poorer nations have been
ranked higher than richer neighbours in terms of
human development.
 For example, Sri Lanka, Trinidad and Tobago have a
higher rank than India in the human development
index despite having smaller economies.
 Similarly, within India, Kerala performs much better
than Punjab and Gujarat in human development
despite having lower per capita income

25.  India ranks (2014) – 135
 HDI –0.586
 Gain of 0.003 HDI from previous year .
 Comes under medium human development
countries.
 Indicators: -
 Life expectancy at birth(by UN). Overall –64.19
years(Rank 147). male – 62.80
years.
 Female – 65.73 years.
 Education index : 0.473 .
 Mean years of schooling : 5.1(rank 65).
 GNI(Gross National Income)per capita at PPP :
$5350
 (rank 127) .