NCERT Class 11 Economics Chapter 5: Human Capital Formation in India YouTube Lecture Handouts

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NCERT Class 11 Economics Chapter 5: Human Capital Formation in India

What Evolved Mankind?

  • Our ability to store and transmit knowledge by conversation and lectures – we require a deal of training and skill
  • Labor skill of educated person is more than uneducated person – he can generate more income and his contribution to economic growth is higher
  • Education gives:
    • Better social standing
    • Better choices in life
    • Provide knowledge to understand the changes in society
    • Stimulates innovations
    • Adoption of new technologies
    • Accelerate developmental process
Aggregate Production Function

Human Capital

  • Competent people who have themselves been educated and trained as professors or professionals
  • Physical resource like land to physical capital like factories. Ownership of physical capital is the outcome of the conscious decision of the owner.
  • Human resource like students to human capital like doctors and engineers
  • For human capital depreciation is with age. Human capital benefits owner and society and this is called external benefit.
  • Physical capital is completely mobile while human capital is not perfectly mobile.
  • Physical capital is tangible while human capital is intangible (build in body and mind of the owner) .
  • Physical capital formation can be built by imports while human capital formation by conscious policy formulations.
  • Physical capital creates only private benefit – benefit from capital good flow to those who pay price for product and services produced by it.
  • We need investment in human capital to produce more human capital
Difference between Physical and Human Capital

Sources of Human Capital

Investment in education – aim to increase future income

Investment in health – sick person will have loss in productivity

Preventive medicine (vaccination)

Curative medicine (medical intervention during illness)

Social medicine (spread of health literacy)

Provision of clean drinking water

On job training

Training in firm under supervision of skilled workers

Workers send to off campus training

Workers should work for specific period after on job training during which it can recover benefits of enhanced productivity

Migration for better jobs and salaries – involves cost of transport, higher cost of living in the migrated places and psychic costs of living in a strange sociocultural setup – enhanced earning in new place outweigh migration cost

Information related to labor market, education and health market – level of salary, educational institutions, right job

Spending on education is similar to spending on capital goods to increase future profits

Economic growth means increase in real national income of a country; naturally, the contribution of the educated person to economic growth is more than that of an illiterate person

Higher productivity leads to better innovation and new technologies.

Education measured in terms of years of schooling, teacher-pupil ratio and enrolment rates may not reflect the quality of education; health services measured in monetary terms, life expectancy and mortality rates may not reflect the true health status of the people

Improved health and education shows convergence in measures of human capital but no sign of convergence of per capita real income

Human capital growth in developing countries has been faster but the growth of per capita real income has not been that fast.

High human capital Higher income

7th 5 Year Plan: HRD to be assigned key role in development strategy. Trained and educated on sound lines – large population can become an asset in economic growth & social change

Growth in each sector reinforces growth in another sector

India can grow faster due to strength in human capital formation


Global Growth Centers report by Deutsche Bank – India will emerge as 4 major growth center by 2020

India and the Knowledge Economy — Leveraging Strengths and Opportunities by World Bank – India should make transition to knowledge economy & if used to extent of Ireland the Per capita income will increase from $ 1000 in 2002 to $ 3000 in 2020 – India has a critical mass of skilled workers, well functioned democracy and diversified science

Human capital considers education and health as a means to increase labor productivity.

Human development is based on the idea 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. It considers human beings as end in themselves.

Human capital treats human beings as a means to an end; the end being the increase in productivity.

State of Human Capital Formation in India

Most important is education and health – expenditure on them is carried by 3 tiers of government – both create private and social benefits

If critical patient is moved to another hospital in that substantial amount of damage has been done

Sometimes providers acquire monopoly and exploit

Organizations like NCERT, UGC, AICTE – education & ICMR for health sector

Basic healthcare and education should be right of citizen – free of cost for deserving citizens & socially oppressed classes

Expenditure by government is expressed as:

% of total government expenditure: importance of education in scheme of things before government

% of GDP: how much income is committed to development of education

Elementary education takes a major share of total education expenditure – we need more teachers who are trained in higher educational institutions – expense on elementary education is much higher for Himachal Pradesh (₹ 34651) than Bihar (₹ 4088)

Govt. spends less on tertiary education but expenditure per student in tertiary education is higher than the elementary education

Education Commission (1964 – 66) had recommended that at least 6 % of GDP be spent on education

Tapas Majumdar Committee (1998) – estimated expense of ₹ 1.37 lakh crore over 10 years

In 2009, GoI enacted the Right of Education Act to make free education fundamental right of all children in the age group of 6 - 14 years

As per 2018 - 19, we have 2 % education cess and 1 % secondary and higher education cess

New loan schemes for students

Developments made in adult education, decreasing dropouts, digital awareness

In 1950 – passing of constituent assembly we had idea of free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the Constitution – but is still a distant dream

Difference in male and female literacy rate is declining – positive sign for gender equity

Women education impacts fertility rate and health care of women and children

Education pyramid is steep in India with very few people reaching higher education

NSSO (2011 - 12) – rate of unemployment – 16 % (urban) and 19 % (rural) ; young rural female graduates (30 %) unemployed while 3 - 6 % primary level educated rural youth in rural and urban area were unemployed

India has a rich stock of scientific and technical manpower in the world. The need of the hour is to better it qualitatively.


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