Economics Project Rough Draft

ECONOMICS PROJECT ROUGH DRAFT
Meaning Human Capital Formation:The term human capital formation implies the development of
abilities and skills among the population of the country. In order to transform the liability of the huge
size of population into assets adoption of various measures for human capital formation is very much
essential.
Human capital formation is the process of adding to the stock of human capital over a period of time.
It refers to development of abilities, skills, education and experience among the population of the
county.
According to Harbison, the human capital formation indicates, “the process of acquiring and
increasing the number of persons who have the skills, education and experience which are critical for
the economic and the political development of the country. Human capital formation is thus
associated with investment in man and his development as a creative and productive resource.”
According to T.W. Schultz, there are five ways of developing human

resources:
(i) Health facilities and services, broadly conceived to include all expenditure that affect the life expectancy, strength and
stamina, and the vigour and vitality of the people;
(ii) In on-the-job training, including aid type apprenticeships organised by firms;
(iii) Formally organised education at the elementary, secondary and higher levels;
(iv) Study programmes for adults that are not organised by firms, including extension programmes notably in agriculture;
(v) Migration of individuals and families to adjust to changing job opportunities.
Moreover, we will have to include the import of technical assistance, expertise and consultants. According to Simon
Kuznets, “The major capital stock of an industrially advanced nation is not its physical equipment; it is body of knowledge
amassed from tested findings and discoveries of empirical science and the capacity and training of its population to use this
knowledge effectively.”
Thus human capital formation indicates investment for imparting education, improvement of health and training of workers
in specialised skills. Accordingly, Prof. Meier observed that, “Human capital formation is the process of acquiring and
increasing the number of persons who have skills, education and experience which are critical for the economic and political
development of a country.”
Importance of Human Capital Formation:

Although the accumulation of physical capital is quite important in the process of economic growth of a country but with the
passage of time, it is being increasingly realised that the growth of tangible capital stock depends extensively on the human
capital formation must get its due importance.

In the absence of adequate investment in human capital, utilisation of physical capital will be at low pace, leading to
retardation of development.
Most of the underdeveloped countries are suffering from low rate of economic growth which is again partially resulted from
lack of investment in human capital. These underdeveloped countries are facing mainly two basic problems. They lack
critical skills very much needed for the industrial sector and again have a surplus labour force.
Thus human capital formation wants to solve these problems by creating necessary skills in man as a productive resource
and also providing him gainful employment.
Human capital is, therefore, required “to staff new and expanding government services, to introduce new system of land use
and new methods of agriculture, to develop new means of communication, to carry forward industrialisation and, to build the
education system.
In other words, innovation or the process of change from static or traditional society requires very large doses of strategic
human capital”.In order to remove economic backwardness of the underdeveloped countries as well as to instill the
capacities and motivations to progress, it is quite necessary to increase the level of knowledge and skills of the people.
Thus in the absence of proper development of the quality of the human factor, the underdeveloped countries will not be able
to attain the desired rate of progress.
Composition of Human Investment:

ADVERTISEMENTS:
The following are the components of human investment:

(i) Health and Nutrition:
As the poor health and undernourishment adversely affect the quality of manpower, the best way to improve the quality of
manpower in underdeveloped countries is to provide adequate food and proper nourishment to people along with adequate
health and sanitation facilities.
(ii) Education and Training:
The second composition of human capital formation is to provide education and training facility to the people in general.
Investments made in education can accelerate economic growth. Proper utility of manpower depends on system of education,
training and industrial experience of the people.
Prof. Singer has rightly observed, “Investment in education is not only highly productive but also yields increasing
returns”. In order to raise the general living standards of the people, investment in human capital for making provision for
education and training is very much required. Moreover adult education and training is also another integral part of
manpower planning.
(iii) Housing Development:
The final component of human capital formation is the development of housing facilities for the people, which is an
important determinant of human resource development. In underdeveloped countries special incentives for private house
construction should be provided in order to provide healthy living conditions to the people. Moreover, steps must be taken to
introduce subsidised housing schemes.
Problems of Human Capital Formation

Growth in population: The rapid rise of the population can influence the grade of human capital
formation, mostly in developing countries. It degrades the per capita availability of the present facility. A
large population involves extra investments.
Long process: The method applied for human development is a long term process because skill
enhancement requires extra time. Therefore, the process becomes very normally slow.
Gender inequality and high regional disparity: These two factors affect the human development skill.
Insufficient on-job training: In the agriculture sector, on-job training to handle advanced equipment is
not provided to the worker.
High poverty level: In India, a large portion of the population is below the poverty line. Therefore, they
do not have easy access to primary health and education.

Economics Project Rough Draft

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ECONOMICS PROJECT ROUGH DRAFT

According to T.W. Schultz, there are five ways of developing human

stamina, and the vigour and vitality of the people;

(ii) In on-the-job training, including aid type apprenticeships organised by firms;

(v) Migration of individuals and families to adjust to changing job opportunities.

Importance of Human Capital Formation:

capital formation must get its due importance.

and also providing him gainful employment.

to attain the desired rate of progress.

Composition of Human Investment:

The following are the components of human investment:

health and sanitation facilities.

(ii) Education and Training:

training and industrial experience of the people.

introduce subsidised housing schemes.

Problems of Human Capital Formation

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