Human Capital Formation

Human capital refers to stock of ‘skill and expertise’ embodied in humans. Human capital is as important as physical capital for economic development. Human capital formation is the process of adding to stock of human capital over time. Human capital can be developed through creation of skilled, trained and efficient labour force by providing better education, health care facilities, etc. Highly skilled people can create new ideas and methods of production. Thus, expenditure on education, on health and on on-job-training are key instruments of human capital formation. Expenditure on education is one of the most important way of enhancing and enlarging a productive workforce in the country. Expenditure on health can create more efficient and more productive human capital. Further, on-the-job-training helps workers to update skills. Training enhances the productivity and is expected to accelerate the process of human capital formation.

Role of human capital formation in economic Development

The human capital formation plays crucial role in the economic development. Firstly, formation of human capital would tend to change the traditional society to modern society, which has higher scope for economic development. Secondly, human capital increases the productivity of the physical capital (for example, they can handle the tools and machines in better way). Enhanced productivity would accelerate the growth. Thirdly, higher standard of life is possible only via development of human capital. Fourthly, human capital formation facilitates the use and growth of innovation. Innovation is the principal determinant of growth. Fifthly, human capital formation increases the rate of participation. Higher the rate of participation, greater is the degree of economic equality in the society. Finally, investment in human capital yields larger returns and the returns on this type of investment far outweigh its input costs. For example, training of the workers increases their productivity which ultimately leads to overall increase in production.

Various Problems in formation  of human capital in India

There are several problems of formation of human capital in India. Firstly, rapid growth of population adversely affects the quality of human capital. It reduces per head availability of the natural resources. Secondly, migration of skilled persons to developed countries is a serious brain drain threat to the process of human capital formation in the country. Thirdly, there is insufficient manpower planning by raising the standard of education at different stages. There is a need to maintain a balance between the demand and supply of technical labour force. Last but not the least, the insufficient supply of qualified and trained technologists is a pointer to a serious neglect of human capital formation in India. On-the-job training should be provided to working population to create a productive human capital formation.

How to Raise the Rate of human capital Formation in India?
  • Check the high rate of population growth.
  • Proper Manpower Planning: A proper manpower planning is a critical requirement to combat the problem of human resource wastage. The planning needs to focus on both the quantitative and qualitative aspects of human capital.
  • Proper educational planning: An effective educational planning that promotes human capital formation must be developed.
  • It should provide for adequate health services and nutritive food to the existing population of the country.