Human Capital Formation in India

Just as a country turns physical resources such as land into physical capital like factories, it can turn human resources into human capital, the stock of skill and expertise of a nation's people. This chapter explains the sources of human capital: investment in education, health, on-the-job training, migration and information. It distinguishes human capital from physical capital, since human capital cannot be separated from its owner, is not sold in the market, and creates wider social benefits. Human capital raises productivity and growth, while human development treats education and health as ends in themselves, not just as means to raise productivity. The chapter examines human capital formation in India, the roles of central and state governments, and the institutions that regulate education and health, such as NCERT, UGC, AICTE and ICMR. It looks at trends in government spending on education, the Kothari Commission's recommendation of spending 6% of GDP on education, the education cess, the Right to Education Act of 2009 for children aged 6-14, literacy rates and gender gaps. It also discusses quality and the brain drain.

Detailed Worksheet: Human Capital Formation in India Section A - Definitions (10 marks) 1. What is human capital? (2 marks) 2. Name the five main sources of human capital formation. (2 marks) 3. Distinguish between human capital and physical capital. (2 marks) 4. What is on-the-job training? How does it benefit a firm? (2 marks) 5. What did the Kothari Commission recommend on education expenditure? (2 marks) Section B - Calculations and Applications (15 marks) 6. According to Census 2011, India's literacy rate was about 74% (men 82%, women 65%). Calculate the gender gap in percentage points. If a district has 10 lakh people aged 7 and above, calculate the number of literates at the national rate. (3 marks) 7. A government spends Rs 12 lakh crore on education in a year when GDP is Rs 300 lakh crore. Calculate education expenditure as a percentage of GDP. How far is this from the Kothari Commission target? (3 marks) 8. A graduate earns Rs 6 lakh a year and a school-leaver Rs 3 lakh a year. If a three-year degree costs Rs 4.5 lakh in fees plus the school-leaver's income forgone, calculate the total cost of the degree and the number of years of extra earnings needed to recover it (ignore interest). (3 marks) 9. A company trains 200 workers at Rs 20,000 each. As a result, each worker's output rises by Rs 50,000 a year. Calculate the total cost, the total gain in the first year and the net gain. (3 marks) 10. The education cess is levied at 4% on income tax collections. If income tax collections are Rs 10 lakh crore, calculate the cess collected. Why is a cess used for education and health? (3 marks) Section C - Diagrams (10 marks) 11. Draw a flowchart showing the sources of human capital formation and how they lead to economic growth. (4 marks) 12. Draw a bar diagram showing illustrative literacy rates: 1951 18%, 1971 34%, 1991 52%, 2011 74%. (3 marks) 13. Draw a diagram showing the two-way relationship between human capital and economic growth. (3 marks) Section D - Analysis and Higher-order Thinking (15 marks) 14. 'Human capital and economic growth reinforce each other.' Explain this statement with examples from India. (5 marks) 15. Explain the problems of human capital formation in India, including low spending, gender disparity, and brain drain. Suggest measures to overcome them. (5 marks) 16. Distinguish between human capital and human development. Why is education important as an end in itself and not only as a means? (5 marks) Instructions: Time allowed 2 hours. Attempt all sections. Show the steps of all calculations. Data marked illustrative are for practice only.