The evolution of mankind highlights the unique human capacity to store and transmit knowledge. To perform tasks efficiently, societies require specialized training and skills. The labor skill of an educated person is significantly higher than that of an uneducated person, enabling the former to generate higher income and contribute more substantially to economic growth.
Just as a country converts physical resources like land into physical capital (such as factories and machinery), it can also transform human resources into human capital (such as engineers, doctors, teachers, and nurses). Human capital represents the stock of skill, ability, expertise, education, and knowledge embodied in the nation's people at any given point in time.
Investment in human capital is essential to produce further human capital. We require competent, highly trained professionals (like professors and doctors) to train the next generation of human resources.
Human capital formation is the process of acquiring and increasing the number of persons who have the skills, education, and experience essential for the economic and political development of a country. The primary sources include:
While both forms of capital result from conscious investment decisions, they differ significantly in their characteristics and economic nature:
| Feature | Physical Capital | Human Capital |
|---|---|---|
| Tangibility | Tangible; can be easily sold in the market. | Intangible; endogenously built in the body and mind of the owner. |
| Separability | Separable from its owner. | Inseparable from its owner; only services are sold, requiring the owner's presence. |
| Mobility | Completely mobile across countries (subject to trade restrictions). | Restricted mobility across countries due to nationality and cultural barriers. |
| Depreciation | Depreciates with time, use, and technological obsolescence. | Depreciates with aging, but can be reduced through continuous investment in health and education. |
| Nature of Benefits | Creates private benefits (flows only to those who pay for it). | Creates both private and social benefits (external benefits to society). |
Economic growth is defined as the increase in a country's real national income. An educated and healthy population contributes more to national income because of enhanced productivity, adaptability to new technologies, and a higher capacity for innovation. The Seventh Five Year Plan of India explicitly recognized that a trained and educated population is a vital asset for accelerating economic growth and social change.
| Particulars | 1951 | 1981 | 1991 | 2001 | 2018-22 |
|---|---|---|---|---|---|
| Real Per Capita Income (in Rs) | 7,651 | 12,174 | 15,748 | 23,095 | 94,054 |
| Crude Death Rate (Per 1,000 Population) | 25.1 | 12.5 | 9.8 | 8.1 | 6.0 |
| Infant Mortality Rate | 146 | 110 | 80 | 63 | 28 |
| Life Expectancy at Birth - Male (Years) | 37.2 | 54.1 | 59.7 | 63.9 | 68.6 |
| Life Expectancy at Birth - Female (Years) | 36.2 | 54.7 | 60.9 | 66.9 | 71.4 |
| Literacy Rate (%) | 16.67 | 43.57 | 52.21 | 65.20 | 78 |
Though often used interchangeably, there is a clear distinction between these two concepts:
In India, expenditures on education and health are carried out simultaneously by the Union government, State governments, and local bodies. Government intervention is essential because these sectors require substantial, long-term investments that cannot be easily reversed, and private providers can easily acquire monopoly power and exploit consumers due to asymmetric information.
Government expenditure on education is analyzed in two ways: as a percentage of total government expenditure (indicating its priority in government policy) and as a percentage of Gross Domestic Product (GDP) (indicating the proportion of national income committed to education).
| Sl.No. Particulars | 1990 | 2000 | 2011 | 2017-18 |
|---|---|---|---|---|
| 1. Adult Literacy Rate (aged 15+) - Male (%) | 61.9 | 68.4 | 79 | 82 |
| 1.2 Adult Literacy Rate (aged 15+) - Female (%) | 37.9 | 45.4 | 59 | 66 |
| 2.1 Primary Completion Rate - Male (%) | 78 | 85 | 92 | 93 |
| 2.2 Primary Completion Rate - Female (%) | 61 | 69 | 94 | 96 |
| 3.1 Youth Literacy Rate (aged 15-24) - Male (%) | 76.6 | 79.7 | 90 | 93 |
| 3.2 Youth Literacy Rate (aged 15-24) - Female (%) | 54.2 | 64.8 | 82 | 90 |