PREPARED BY

SOWMYA

ECONOMICS,PGT

DAV GIRLS SR SEC SCHOOL, GOPALAPURAM

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“ A nation’s true wealth is neither in its land and water, nor in forests and mines, nor in its flock and herds, nor in dollars but in its wealthy and happy men, women and children.”

Includes all those inputs which are required for further production like plant and machinery, factory, buildings, raw materials, etc.

• Is needed to make use of physical resources
• Needs to be accumulated to lead to economic growth
• Ownership is due to conscious investment
• An economic and technical process

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Refers to the stock of skill, ability, expertise, education and knowledge embodied in people

• Needed to make effective use if physical capital
• Need to invest in HK to produce more HK
• (eg) investment in education. Educated and trained people are needed to create other professionals.
• HK benefits the owner and the society

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COMPARISON

PHYSICAL CAPITAL

1. Tangible
2. It depreciates with passage of time
3. It is more mobile between countries
4. Can be separated from its owner
5. Is the outcome of conscious decision to invest
6. Can be built through imports

HUMAN CAPITAL

1. Is intangible
2. Depreciation can be avoided by making continuous investments in education and health
3. Less mobile between nations
4. Cannot be separated from the owner
5. Formation is partly a social process and partly a conscious decision
6. Can be built by policy decisions.

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SOURCES OF HKF

1. Expenditure on education

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2. Expenditure on health

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3. on- the job training

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4. Expenditure on migration

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5. Expenditure on information

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• EXPENDITURE ON EDUCATION
• Labour skill of educated is more
• Individuals invest in education to increase their future income and standard of living

Contribution to Economic Growth

1. Education confers higher earning capacity on people.
2. It gives better social standing and pride
3. It enables one to make better choices in life
4. It provides knowledge to understand the changes taking place in society
5. It facilitates adaptation of new technologies

EXPENDITURE ON HEALTH

• Directly increases the supply of healthy labour force
• Poor health and under nourishment affect the quality of labour
• Poor health leads to abstaining from work
• Health investment improves labour productivity
• Adequate food, nourishment and sanitation improves quality of human capital

• Health
• expenditure
• Preventive medicine

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• Social
• medicine

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• Clean water
• Good sanitation

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• Curative medicine

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FORMS OF HEALTH EXPENDITURE

1. Preventive medicine: vaccination

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2. Curative medicine : medical intervention during illness

3. Social medicine : spread of health literacy

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4. provision of clean drinking water

5. Good sanitation facilities

ON-THE-JOB TRAINING

• Increases the productivity of physical capital due to improvement of human capital (practical training)
• Can be provided fast and without much cost(specific training)
• FORMS:
• Trained under the supervision of a skilled worker
• Sent to 0ff-campus training.

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• Bonds/ agreements..... – to recover cost of training

MIGRATION

EXPENDITURE ON MIGRATION

• In search of better jobs and income
• Rural to urban
• Technically qualified migrate to other countries
• Involves cost
• Cost of transportation
• Higher cost of living
• Cost-Benefit analysis

EXPENDITURE ON INFORMATION

• Spending to acquire information relating to labour market and other markets
• Seeking information about educational institutions
• Seeking information about job market, placements, CTC, employability skills
• Information to decide on investment of HK

HUMAN CAPITAL AND ECONOMIC GROWTH

• Economic growth means the increase in real national income of a country
• Contribution of educated and healthy individuals towards economic growth would be more
• HKF promotes innovations, inventions and technological improvement
• Education provides better understanding of society and sciences.
• HOWEVER
• Difficult to prove the relation between HKF and economic growth
• Health services measured in monetary terms , life expectancy and mortality rates may not reflect the true health status of a nation
• INTERDEPENDANCE
• Higher income causes growth of human capital
• Higher level of HK leads to higher growth of income

DEVELOPMENT INDICATORS IN EDUCATION AND HEALTH

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• Studies reveal that HKF in the nation has been faster but the growth of per capital real income has not been that fast.

Report by DEUTSCHE Bank

• India will emerge as one among four major growth centres in the world by the year 2020
• Increase in HK is crucial to achieve increase in GDP
• With reference to India, between 2005 and 2020, a 40% rise in the average years of education in India is expected

Report by WORLD BANK

• India should make a transition to knowledge economy
• If India uses its knowledge effectively as Ireland, then its per capital income will increase from USD 1000 in 2002 to USD 3000 in 2020
• The Indian economy has all the key ingredients for making this transition. It has large number of skilled workers, a well functioning democracy and a diversified science and technology infrastructure.

7^TH FIVE YEAR PLAN

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HK must be assigned a key role in any development strategy, particularly in a country with a large population. Trained and educated population can become an asset in accelerating economic growth and in ensuring social change in desired direction.

INDIA AS A KNOWLEDGE ECONOMY

• Indian software industry has been showing an impressive record over the past decade.
• Entrepreneurs, bureaucrats and politicians are advancing views on knowledge based economy through IT sector growth
• e-governance is way of future as projected
• Basic infrastructural development for growth of IT and thereby overall growth

Role of HKF

1. Effective use of physical capital
2. Higher productivity and production
3. Inventions, innovations and technological improvement
4. Modernization of attitudes
5. Increase in life expectancy
6. Improves quality of life
7. Controls population growth

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1. Effective use of physical capital: hard and intelligent work of human capital creates physical capital. Also human skill and efforts help in effective utilisation of physical capital.

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• Higher productivity and production: technical skill that is acquired through education of population helps in raising productivity and also educates them to take care of self. Acquisition of new skills also happens due to investment in HK

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3. Inventions, innovations and technological improvement: education provides knowledge to understand changes in society and scientific advancements which facilitates inventions and innovations through adaptation.

4. Modernization of attitude: a will to change - a changing mental outlook

5. Increases life expectancy: better health- nutrition – better quality of life

6. Improves quality of life: education – health - employment - income –variety consumption – higher standard of life – productive life - creative life - higher quality of life

7. Control of population growth: spread of eduation – limits family size

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PROBLEMS OF HUMAN CAPITAL FORMATION

• 1. Insufficient resources : inadequate allocation of resources for HKF – slow growth

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• 2.Serious inefficiencies: unemployment of skills – wastage of resourse - illiteracy - poor health

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• 3. Brain Drain: loss of cream due to migration – loss of quality – huge cost

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• 4. Several imbalances: huge investment on higher education – no takers - lack of investment on primary and secondary education

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• 5. Higher growth rate of population: has reduced

the per head availability of capital

6. Lack of proper manpower planning: Imbalance between demand and supply of human resources of various categories – wastage of resources

7. Weak science and technology: in respect of education – dissatisfactory performance - lack of development in science and technology - research

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HUMAN CAPITAL and HUMAN DEVELOPMENT

• Human capital considers education and health as a means to increase labour productivity. It should enhance output.
• Human development is an end due to investment in human capital
• Development of human capital and quality of human resource through investment in education and health leads to human development
• Human capital is an economic concept, while human development is a social concept.

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INVESTMENT IN EDUCATION IN INDIA�(public and private)

• Central government
• State government
• Local self government

Need for government intervention

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• Expenditure on education and health has substantial long term impact and they cannot be easily reversed. (if wrongly done)
• Individual consumers of such services do not have an idea of the cost of such services.
• Private service providers may acquire monopoly power and start exploiting.
• Government intervention necessary to fix prices and set stipulated standards.
• To create large scale awareness about health, hygiene, availability of preventive care medicines, government role is needed. Eg. Polio eradication

REGULATORY AUTHORITIES

• NCERT – National Council of Educational Research and Training
• UGC – University Grants Commission
• AICTE – All India Council of Technical Education
• ICMR – Indian Council of Medical Research

BASIC EDUCATION AND HEALTH CARE

• (FUNDAMENTAL RIGHT)
• Large section of the population BPL - not able to afford basic education and health care
• Cannot afford super speciality hospitals and higher education
• Basic education and health care is considered as a right of citizens, so government has to provide it free of cost for deserving population and socially oppressed classes
• Both SG and CG has increased expenditure on education aiming at 100% literacy

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GROWTH IN GOVERNMENT EXPENDITURE ON EDUCATION

• As a percentage of total government expenditure: During 1952 -2014, it increased from 7.92 to 15.7
• As a percentage of GDP: it increased from 0.64 to 4.13
• Increase in education expenditure has not been uniform.
• There has also been private expenditure undertaken by philanthropists, individuals.

Government expenditure

• Government spends more on elementary education. Share of higher or tertiary education is the least.
• Expenditure on tertiary education is important. However expenditure per student in tertiary education is higher than that of elementary education. There is a need for trained teachers in higher educational institutions. Expenditure on all levels of education has to be increased.
• Difference in educational opportunities across states: The per capital education expenditure differs considerably across states from as high as ₹ 34,651 in the state of Himachal Pradesh to as low as ₹4088 in the state of Bihar in the year 2014 – 15.

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INADEQUATE EXPENDITURE ON EDUCATION

• The expenditure on education of very less compared to the desired level of education expenditure recommended by the various commissions.
• Majumdhar Committee in 1964-66, recommended that at least 6% of the GDP should be spent on education. However the current level of expenditure is little over 4%

Provision of free and compulsory education

• Government needed an estimated expenditure of around ₹1.37 lakh crore over 10 years (1998-99 to 2006-07)
• In the Union Budget 2000-05, the government of India levied a 2% education cess on all Union Taxes.
• Sarva Siksha Abhiyan was launched in 2001 to universalize and improve the quality of elementary education in India
• Other programs like National Program for Education of Girls at Elementary Education and Kasturba Gandhi Balika Vidyalaya were launched to enhance education for girls in elementary and upper primary levels with residential facilities

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• Adult Literacy Rate refers to the ratio of literate adult population to the total adult population in the country.
• Primary completion rate refers to the percentage of students completing the last year of primary school.
• Youth literacy rate is the percentage of people in the agegroup of 15 – 24 who can, with understanding, read and write a short simple statement on their every day life.

Future prospects in educational sector

• Education for all is still a distant dream : Though literacy rates for both adults as well as youth have increased, the absolute number of illiterates is still as much as India’s population was at the time of Independence.
• Gender equity better than before: differences between male and female literacy rate is narrowing.
• Women education has to be promoted to improve economic independence and social status of women. Women education will also make a favourable impact on fertility rate and health care of women and children.
• Higher education few takers: the Indian education pyramid is steep indicating lesser and lesser number of people reaching the higher education level.
• As per NSSO data: the level of unemployment rate of educated youth is 19% in rural areas and 16% in urban areas as per 2011-12 data.
• Young female unemployment rate was 30%
• Only 3%-6% of the population were unemployed after having completed primary level of education.