Human Capital Formation in India

Topics to be Covered
 Introduction
 Human Capital and Human Capital Formation
 Determinants/Sources of human capital formation
 Role of human capital formation
 Cause and effect relation between HCF and economic growth
 Problem in human capital formation
 Education: Meaning Importance and Objectives
 Facts about education sector in India
 Education: A challenge in India

INTRODUCTION
Every economy, whether developed, developing or underdeveloped, require
resources for the production of goods and services. Some of these resources are
physical like plants, machinery etc, some of them are financial like money invested
and some of them are human resources.

Economic thinkers believe that just like physical capital needs upgradation,
similarly, human resources need to be upgraded so that they become Human
Capital. This chapter will explain in detail the meaning of human capital and
human capital formation, relation between human capital and economic growth
and much more.

Let us all begin.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 HUMAN CAPITAL
It refers to the stock of skills and expertise in the country. Since, human capital is
measured at particular point of time therefore, it is considered to be a stock
concept.

HUMAN CAPITAL FORMATION

It refers to the process of additions to the existing stock of skills and expertise in
the country. Since, human capital formation is measured over a period of time,
therefore, it is called as flow concept.

Physical Capital Financial Capital Human Capital

• It refers to the means • It refers to paper • It refers to the stock

of production which claims against of skills and expertise
helps in the physical capital or the in the country.
production of goods amount invested in
and services. any production
activity.

Since now we have understood that what is the difference between physical,
financial and human capital, it is important to understand that how human
resources can be converted into human capital? In this section, we will discuss in
detail various sources or determinants which lead to human capital formation.

DETERMINANTS/SOURCES OF HUMAN CAPITAL FORMATION

1. Expenditure on Education

a) Every household incurs huge expenditure in education of their children as they

believe that education offers various benefits like better standard of living, high
paid jobs etc.
b) However, on the other hand, acquiring education involves cost expenditure in
terms of time, efforts and money.
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
c) As long as benefits are more than cost, expenditure on education will be done and
it will add on to HCF
d) The difference between benefits and cost of education is called as Market Value of
Human capital formation.

2. Expenditure on Health

a) Huge expenditure is often incurred in acquiring good health facilities, healthy diet
etc.
b) This is done because good health offers benefits like high productivity, increased
work efficiency etc.
c) However, it involves cost expenditure in terms of time, efforts and money.
d) As long as benefits are more than the cost of acquiring good health, it will add to
HCF

3. Expenditure on Migration

a) Migration means movement from one place to another in search of better job
opportunities, high standard of living etc.
b) Migrating from one place to another involves cost in terms of expenditure of
reallocation, inconvenience, cultural differences etc. But at the same time, offers
benefits like better job opportunities and high standard of living.
c) As long as benefits are more than cost, it adds to HCF

4. On the Job Training

a) Every organization often incurs expenditure on providing on the job training to

their newly recruited employees.
b) Such training programmes are provided with a view of generating benefits like
increased efficiency, familiarity with the work environment, better application of
theoretical concepts into practical situations.
c) But, providing these training programmes involves firm’s expenditure in terms of
time, efforts and money.
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
d) As a long as benefits are more than cost, it will add to HCF.

5. Expenditure on Information & Study Programmes for Adults

a) In order to bridge a gap between demand and supply of labour, efforts have been
made both by private and public sector firms to provide information related to job
markets, education institutions, educational courses etc on various platforms like
internet, newspapers, television etc.
b) Government organizes various study programmes for adults in rural areas
specifically.
c) Both these programmes aim at increasing the potential, productivity, work
efficiency and skills of people.
d) As a result, this adds to human capital formation.

ROLE OF HUMAN CAPITAL FORMATION

For any economy to be developed, it is important that requisite investment is
done by the government on enhancement of their human capital. Economic
thinkers are of the view that stronger the human capital base is of the economy,
faster will be the rate of innovation, economic growth and development. This is
because there is direct relation between Human capital formation and Economic
growth of an economy. It is because of this reason that main highlight of India’s
7th five-year plan was Human Capital Formation.

1. Change in Material and Emotional Environment

(a) Emotional environment becomes appropriate as people become growth

oriented.

(b) Material Environment becomes conductive when large people are able to
implement the plans of growth

2. Higher Productivity of Physical capital

(a) HCF increases the output produced per unit of physical capital.

(b) It enhances productivity and accelerates the pace of growth.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
3. Innovative Skills

(a) Innovative skills enhance productivity and efficiency of people.

(b) It leads to research and development, innovations.

(c) Thus, leads to economic growth

4. High Rate of Participation

(a) Rate of participation refers to the percentage of people engaged in production

process.

(b) HCF increases the rate of participation and leads to economic growth.

Often, the relation between Human capital formation and economic growth is
debated. While some say that the relation is uni-directional, others feel that it is a
two-way relation. Both are cause and effects of each other.

CAUSE AND EFFECT RELATION BETWEEN HCF AND ECONOMIC GROWTH

Human capital formation leads to better utilization of resources as it enhances

their skills, efficiency and work productivity, Increase in these factors leads to
greater rate of participation and thus, ensure greater production of goods and
services.

Enhancement in production activity involves increase in income, employment

and output of the economy. The increased of income in the economy would then
be used in greater expenditure in education and health which in turn, leads to
Human capital formation.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 Human Capital Leads to Better which Increases
Formation utilization of productivity and
resources efficiency

Leads to

Increased This increases Increase in rate of

expenditure on employment and participation and
Means
education and therefore, income GDP
health

PROBLEMS IN HUMAN CAPITAL FORMATION

By now, we have understood that human capital formation is important for each
and every economy in the world. Components like education, health, migration
etc. adds to this process and enhance the skills and efficiency of individuals. But
despite all such benefits, there are various factors which act as a hindrance in this
process. Let us now discuss those factors in details.

1. Population Explosion

(a) India has been in the grip of rising population since years.

(b) Huge population base reduce per capita availability of resources.

(c) This implies a significant fall in quality of life of people and also, indicates their
inability to acquire new skills.

2. Brain Drain

(a) Brain Drain means migration of skilled people from one place to another in
search of better job opportunities and good standard of living.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(b) India has experienced the problem of brain drain since decades.

(c) Due to decline in the number of skilled people relative to entire population,
there is a significant reduction in the speed of HCF in our country.

3. Deficient Manpower Planning

(a) While, the firms and big corporate houses represent the demand of labour,
supply of labour refers to the number of hours a person is willing to offer hi labour
services.

(b) There is a gap between demand and supply of labour.

(c) Such a gap leads to wastage of human capabilities and skills and act as a
hindrance in the process the HCF.

4. Inefficient on the Job Training in Agriculture Sector

(a) Despite a decline in the GDP contribution of agriculture sector, still 60% of
India’s population is engaged in agriculture sector.

(b) Various reforms like revolution, allocation of funds to this sector under
government budget did show some improvements but only in limited states and in
limited crops.

(c) On the whole, Traditional techniques of production still dominate the

agriculture sector. There is lack of on-the-job training in this sector. Disguised
unemployment to some extent reduces the overall productivity and thus, acts as a
hindrance in HCF

5. Low Academic Standards

(a) Education system in India is degree and theory oriented.

(b) It lacks practical aspects as it does not include Vocationalisation if education

(c) It thus, fails to develop skills among students which would allow them to enter
in employment field immediately after their years of schooling.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 Economic Planners believe that if we have to solve the problems related to human
capital formation, enhancement in the education system is the key. Next section
explains the meaning of education, some important facts related to Indian
education system and why education in India is still considered to be as a
challenge?

EDUCATION
It refers to the process of teaching, learning and training to improve knowledge
and skills.

IMPORTANT AND OBJECTIVES OF EDUCATION

 Produces responsible citizens
 Facilitates optimum utilization of resources
 Allows increased rate if participation
 Develops science and technology
 Helps in economic development
 Develops human personality

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 SOME FACTS ABOUT EDUCATION SECTOR IN INDIA

As the percentage Indicates the importance

of total of education compared to
other expenses of the
expenditure
government
Expenditure by
the Government
1. in Education
This express how much of
As the percentage our income is being
of GDP committed to the
development of education

Elementary Education Expenditure per student For expansion of

takes highest share of is more in case of higher school education,
2. total education 3. education as compared 4. more of trained
expenditure and the to elementary education teachers are
lowest share is of required
tertiary education

Per Capita govt expenditure This leads to differences in

on education is highest in educational opportunities
5. Himachal Pradesh and across states
lowest in Bihar.

The Tapas Mojumdar Right to Education Act Government has started

Committee (1998) was set was enacted in 2009 to levying 2% of education
6. up to bring all Indian
7. make free education a
8. cess on all union taxes. The
children in age group 6-14 fundamental right for revenue from the same is
years under the purview of all the children in age used on promotion of
school education 6-14 years elementary education

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 Education for all seems to There is a decline in difference in
be a dream as there is large literacy rate of males and females,
9. absolute number of 10. implying positive development in
illiterates. gender equity

EDUCATION IS STILL A CHALLENGING PROPOSITION

1. Large Number of Illiterates

(a) Number of illiterates in India is very large.

(b) The number is even more than the population of some countries.

(c) As a result, due to poverty and unemployment, education in most of the poor
families takes a back seat.

2. Inadequate Vocationalisation

(a) Education in India is degree and theory oriented.

(b) It lacks practical aspects.

(c) It does not include vocationalisation of education

(d) It thus, fails to develop skills among students

3. Gender Biasedness

(a) There is significant gender bias in our country in terms of access to education.

(b) Drop out ratio of females is much more than males in elementary education.

(c) Enrolment ratio for females is low.

4. Low Rural Access Level

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(a) High degree of disparity in the access of education in rural and urban areas.

(b) Access level is low in rural areas as compared to urban areas

(c) Therefore, population in rural areas is majorly illiterate.

5. Privatisation

(a) Education in India has become privatised.

(b) Privatisation has made the education all the more expensive thereby, making it
difficult for everyone to afford

6. Low Government Expenditure

(a) The government has failed to fulfill its commitment of spending nearly 6% of
GDP on education. It is presently spending only 4% of GDP.

Education Achievement in a country is measured through Indicators like

-Adult Literacy Rate

-Primary Education Completion Rate

-Youth Literacy Rate

TERMS TO REMEMBER NCERT (National education research and training) is

engaged in designing text material up to senior secondary level

University Grants commission (UGS) is a funding authority for university

education. Frames rules and regulations regarding higher education.

All India Council of Technical Education (AICTE) enforces rules and regulations
regarding technical/ engineering education

ICMR (Indian Council for medical Research) enforces rules and regulations for
medical education in India

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Navodaya Vidyalaya (1987-88) were set up to impact modern education of good
standard to talented students of rural areas Kendriya Vidyalayas were set up to
provide education to children of central government employees (transferable)

Important definitions and Timeline of significant events

Terms/Year of Event

• Human Capital • It refers to the stock of skills and expertise in

the country at a particular point of time.
• It refers to the process of additions to the
• Human Capital Formation existing stock of skills and expertise in the
country over a period of time.
• It refers to the means of production which
• Physical Capital helps in the production of goods and
services.
• Financial Capital • It refers to paper claim against physical
capital or the amount invested in any
production activity.
• Objective of 7th Five Year Paln • Human Capital Foramtion
• It refers to the movement of people from one
• Megration place to another in search of better job
opportunities and standard of living.
• Education • It is the process of teaching, learning and
training to improve knowledge and skills.
• Right to Education Act
• 2009
• Tapas Mojumdar Committee was set up to
bring all children in the age group 6-14 years
• 1998 under the purview of school education.

• 2004 • Imposition of Education Cess in India

• Rate of Education Cess on all union taxes • 2%

HINTS/SOLUTIONS TO NCERT QUESTIONS

(Hints/Solutions to NCERT questions that are related to CBSE Class XII syllabus)

1. What are the two major sources of human capital in a country?

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 Ans. Major sources of human capital in India are: (Any 2)

 Investment in education
 Expenditure on health
 On the job training
 Study programmes for adults
 Migration

2. What are the indicators of educational achievement in a country?

 Ans. Adult literacy level

 Primary education completion rate
 Youth literacy rate

3. Why do we observe regional difference in educational attainment in India?

 Ans. With majority of population living below poverty line, most of them cannot
afford basic education and health care facilities
 A substantial section of our people cannot afford to reach super speciality health
care and higher education.

4. Bring out the differences between human capital and human development.

Ans. Human capital is the stock of skills and expertise in the economy at a
particular point of time. Whereas, Human development refers to the process of
building skills and expertise in the economy. It is measured over a period of time.

5. How is human development a broader term as compared to human capital?

Ans. Refer to NCERT Question No. 4

6. What factors contribution to human capital formation?

Ans. Refer to NCERT Question No. 1

7. How government organizations facilitate the functioning of schools and

hospitals in India?

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 Ans. Both Central and state government set aside a part of their budget to be
invested in education.
 They also offer these services free of cost to deserving citizens and those from
socially oppressed classes.

8. Education is considered to be an important input for the development of a

nation. How?

Ans. Importance and Objectives of Education are as follows:

 Produces responsible citizens

 Facilitates optimum utilization of resources
 Allows increased rate if participation
 Develops science and technology
 Helps in economic development
 Develops human personality

9. Discuss the following as a source of HCF

 Health infrastructure
 Expenditure on migration

Ans. Expenditure on Health

a) Huge expenditure is often incurred in acquiring good health facilities, healthy diet
etc.
b) This is done because good health offers benefits like high productivity, increased
work efficiency etc.
c) However, it involves cost expenditure in terms of time, efforts and money.
d) As long as benefits are more than the cost of acquiring good health, it will add to
HCF

Expenditure on Migration

a) Migration means movement from one place to another in search of better job
opportunities, high standard of living etc.
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
b) Migrating from one place to another involves cost in terms of expenditure of
reallocation, inconvenience, cultural differences etc. But at the same time, offers
benefits like better job opportunities and high standard of living.
c) As long as benefits are more than cost, it adds to HCF

10. Establish the need for acquiring information relating to health and
educational expenditure for the effective utilization of human resources.

Ans. 1. Expenditure on Education

a) Every household incurs huge expenditure in education of their children as they

believe that education offers various benefits like better standard of living, high
paid jobs etc.
b) However, on the other hand, acquiring education involves cost expenditure in
terms of time, efforts and money.
c) As long as benefits are more than cost, expenditure on education will be done and
it will add on to HCF
d) The difference between benefits and cost of education is called as Market Value of
Human capital formation.

2. Expenditure on Health

a) Huge expenditure is often incurred in acquiring good health facilities, healthy diet
etc.
b) This is done because good health offers benefits like high productivity, increased
work efficiency etc.
c) However, it involves cost expenditure in terms of time, efforts and money.
d) As long as benefits are more than the cost of acquiring good health, it will add to
HCF

11. How does investment in human capital contribution to growth?

 Ans. Human capital formation leads to better utilization of resources as it

enhances their skills, efficiency and work productivity, Increase in these factors

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 leads to greater rate of participation and thus, ensure greater production of goods
and services.
 Enhancement in production activity involves increase in income, employment and
output of the economy. The increased of income in the economy would then be
used in greater expenditure in education and health which in turn, leads to Human
capital formation.

12. “There is a downward trend in equality in worldwide with rise in the average
education levels.” Comment.

Ans. Data shows that there is a convergence in the measures of human capital but
no sign of convergence of per capita real income. In other words, the human
capital growth in developing countries has been faster but the growth of per
capita income has not been that fast.

13. Examine the role of education in economic development of a nation.

Ans. Refer to Question No. 8

14. Explain how investment in education stimulates economic growth.

Ans. Investment in education enhances the level of skills and expertise in the
economy. Enhanced level of skills is then used in innovations, inventions, research
and development. This leads to upgradation of technology and better ways of
production of goods and services. This is turn, leads to Economic Growth.

15. Bring out the need for on-the-job training for a person.

Ans. Role of On-the-Job Training

a) Every organization often incurs expenditure on providing on the job training to

their newly recruited employees.
b) Such training programmes are provided with a view of generating benefits like
increased efficiency, familiarity with the work environment, better application of
theoretical concepts into practical situations.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
c) But, providing these training programmes involves firm’s expenditure in terms of
time, efforts and money.
d) As a long as benefits are more than cost, it will add to HCF.

16. Trace the relationship between human capital and economic growth.

 Ans. Human capital formation leads to better utilization of resources as it

enhances their skills, efficiency and work productivity, Increase in these factors
leads to greater rate of participation and thus, ensure greater production of goods
and services.
 Enhancement in production activity involves increase in income, employment and
output of the economy. The increased of income in the economy would then be
used in greater expenditure in education and health which in turn, leads to Human
capital formation.

17. Discuss the need for promoting women’s education in India.

 Ans. For improving economic independence and social of women

 Women education will make a positive impact on fertility rate and health care of
both women and children.

18. Argue in favour of the need for different forms of government intervention
in education and health in India.

Ans. Education and health are among the basic necessities of human life. With
majority of population living below poverty line, it is necessary that everyone is
able to afford it. Involving private sector completely in these sectors will make
these services expensive and difficult for poor people to afford them. Therefore, it
becomes important for the government to offer these services, keeping in mind
the objective of social welfare.

19. What are the major problems in human capital formation in India?

Ans. Problems in Human Capital Formation

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
1. Population Explosion

(a) India has been in the grip of rising population since years.

(b) Huge population base reduce per capita availability of resources.

(c) This implies a significant fall in quality of life of people and also, indicates their
inability to acquire new skills.

2. Brain Drain

(a) Brain Drain means migration of skilled people from one place to another in
search of better job opportunities and good standard of living.

(b) India has experienced the problem of brain drain since decades.

(c) Due to decline in the number of skilled people relative to entire population,
there is a significant reduction in the speed of HCF in our country.

3. Deficient Manpower Planning

(a) While, the firms and big corporate houses represent the demand of labour,
supply of labour refers to the number of hours a person is willing to offer hi labour
services.

(b) There is a gap between demand and supply of labour.

(c) Such a gap leads to wastage of human capabilities and skills and act as a
hindrance in the process the HCF.

4. Inefficient on the Job Training in Agriculture Sector

(a) Despite a decline in the GDP contribution of agriculture sector, still 60% of
India’s population is engaged in agriculture sector.

(b) Various reforms like revolution, allocation of funds to this sector under
government budget did show some improvements but only in limited states and in
limited crops.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(c) On the whole, Traditional techniques of production still dominate the
agriculture sector. There is lack of on-the-job training in this sector. Disguised
unemployment to some extent reduces the overall productivity and thus, acts as a
hindrance in HCF

5. Low Academic Standards

(a) Education system in India is degree and theory oriented.

(b) It lacks practical aspects as it does not include Vocationalisation if education

(c) It thus, fails to develop skills among students which would allow them to enter
in employment field immediately after their years of schooling.

20. In your view, is it essential for the government to regulate the fee structure
in education and health care institutions? If so, why?

Ans. Yes, it is essential for the Government to regulate the fee structure because
Education and health are among the basic necessities of human life. With majority
of population living below poverty line, it is necessary that everyone is able to
afford it. Involving private sector completely in these sectors will make these
services expensive and difficult for poor people to afford them. Therefore, it
becomes important for the government to offer these services at revised fees
structure, keeping in mind the objective of social welfare.

PREVIOUS YEARS’ CBSE QUESTIONS

Very Short Questions

1. Define Human Capital. (CBSE, 2020)

2. Define ‘Human Capital Formation’. (CBSE, 2020)

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
3. State true/false with reasons. “Human Capital Formation gives birth to
innovation, invention and technological improvements.”

(CBSE Sample Paper, 2020-21)

Or

“Human Capital Formation gives birth to innovation, invention and technological

improvements.” Do you agree with the given statement? Support your answer
with valid arguments. (CBSE, 2020)

4. In the year ………………………………, the Indian Government made education free

and compulsory for all children between 6- 14 years. (CBSE, 2020)

(Choose the correct alternative)

(a) 2001 (b) 2009

(c) 2003 (d) 2007

5. ‘Education Commission 1946-66 had recommended that at least 6 per cent to

GDP must be spent on education’. How far India has been able to achieve the
said goal? (CBSE Sample Paper, 2019-20)

Solutions to Very Short Previous Years’ CBSE Questions

1. Human capital refers to the stock skills and expertise in the economy at a
particular point of time.

2. It refers to the process of additions to the existing stock of skills and expertise in
the country. It is measured over a period of time.

3. True, human capital formation increases the skills and expertise in the
economy. These skills and expertise are then used in research and development
which leads to greater level of innovation and technological advancements.

4. Option (b)
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 5. The government has failed to fulfill its commitment of spending nearly 6% of
GDP on education. It is presently spending only 4% of GDP.

Short Answer Questions

6. Explain, how does ‘Investment in Human Capital’ contribution to growth of an
economy. (CBSE, 2020)

 Ans. Human capital formation leads to better utilization of resources as it

enhances their skills, efficiency and work productivity, Increase in these factors
leads to greater rate of participation and thus, ensure greater production of goods
and services.
 Enhancement in production activity involves increase in income, employment and
output of the economy. The increased of income in the economy would then be
used in greater expenditure in education and health which in turn, leads to Human
capital formation.

7. “Economists believe that India should spend atleast 6% of its GDP on

Education for achieving desired results.” Justify the statement with valid
reasons. (CBSE, 2020)

Ans. Yes, Indian government must spend atleast 6% of its budget expenditure on
education because it generates various benefits. Some of them are as follows:

 Produces responsible citizens

 Facilitates optimum utilization of resources
 Allows increased rate if participation
 Develops science and technology
 Helps in economic development
 Develops human personality

However, Indian government has failed to achieve the targets. It is able to spend
only 4% of its budget expenditure on education.
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 8. Discuss of On-Job training for an employee. (CBSE, 2020)

Ans. Role of On-The-Job Training

a) Every organization often incurs expenditure on providing on the job training to

their newly recruited employees.
b) Such training programmes are provided with a view of generating benefits like
increased efficiency, familiarity with the work environment, better application of
theoretical concepts into practical situations.
c) But, providing these training programmes involves firm’s expenditure in terms of
time, efforts and money.
d) As a long as benefits are more than cost, it will add to HCF.

ADDITIONAL QUESTIONS
Very Short Questions

1. Assertion (A): Human Capital Formation is a stock concept.

Reason (R): Stock refers to the variables which are measured at a particular
point of time.

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

2. Assertion (A): Human Capital Formation is an important determinant of

economic growth of a nation.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
Reason (R): Human Capital Formation leads to better utilization of resources
which enhances their skills and productivity.

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

3. Assertion (A): Expenditure on education and health are key determinants of

human capital formation

Reason (R): Human Capital Formation is an ongoing and a continuous process.

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

4. Which committee took the decision to bring all the children in the age group
of 6-14 years under the purview of school curriculum?

5. What is Right to Education?

6. What do you understand by Brain Drain?

7. In which year, education cess was imposed in India?

8. Which of the following five-year plans, recognized the importance of Human

capital?

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(a) Sixth (b) Seventh (c) Eighth (d) Ninth

Hints/Solutions to Very Short Additional Questions

1. Option (d)

2. Option (a)

3. Option (b)

4. Tapas Mojumdar Committee

5. Right to Education Act makes free education compulsory for the children in the
age group of 6-14 years of age.

6. It refers to a situation which involves migration of skilled people from one

country to another in search of better job opportunities and good standard of
living.

7. Year 2004

8. Option (b)

Short Answer Questions

9. “The causality between human capital and economic growth flows in either
direction.” Explain the statement.

Ans. Human capital formation leads to better utilization of resources as it

enhances their skills, efficiency and work productivity, Increase in these factors
leads to greater rate of participation and thus, ensure greater production of goods
and services.
Enhancement in production activity involves increase in income, employment and
output of the economy. The increased of income in the economy would then be
used in greater expenditure in education and health which in turn, leads to Human
capital formation.
TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
10. Differentiate between the concepts of human capital and human
development.

Ans. Human capital is the stock of skills and expertise in the economy at a
particular point of time. Whereas, Human Development refers to the process of
building skills and expertise in the economy. It is measured over a period time.

11. Human Capital formation is a process which gets affected by presence of

various problems. Discuss.

Ans. Problems in Human Capital Formation

1. Population Explosion

(a) India has been in the grip of rising population since years.

(b) Huge population base reduce per capita availability of resources.

(c) This implies a significant fall in quality of life of people and also, indicates their
inability to acquire new skills.

2. Brain Drain

(a) Brain Drain means migration of skilled people from one place to another in
search of better job opportunities and good standard of living.

(b) India has experienced the problem of brain drain since decades.

(c) Due to decline in the number of skilled people relative to entire population,
there is a significant reduction in the speed of HCF in our country.

3. Deficient Manpower Planning

(a) While, the firms and big corporate houses represent the demand of labour,
supply of labour refers to the number of hours a person is willing to offer hi labour
services.

(b) There is a gap between demand and supply of labour.

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(c) Such a gap leads to wastage of human capabilities and skills and act as a
hindrance in the process the HCF.

4. Inefficient on the Job Training in Agriculture Sector

(a) Despite a decline in the GDP contribution of agriculture sector, still 60% of
India’s population is engaged in agriculture sector.

(b) Various reforms like revolution, allocation of funds to this sector under
government budget did show some improvements but only in limited states and in
limited crops.

(c) On the whole, Traditional techniques of production still dominate the

agriculture sector. There is lack of on-the-job training in this sector. Disguised
unemployment to some extent reduces the overall productivity and thus, acts as a
hindrance in HCF

5. Low Academic Standards

(a) Education system in India is degree and theory oriented.

(b) It lacks practical aspects as it does not include Vocationalisation if education

(c) It thus, fails to develop skills among students which would allow them to enter
in employment field immediately after their years of schooling.

CASE/SOURCE BASED QUESTIONS

(Case Studies given below have been taken from different newspapers and
journals. The content has been modified to suit the requirements of CBSE Class
XII-Syllabus.)

1. Based on the passage below, answer the following questions.

Many stalwarts have, from time to time, made arguments for a better education
system for India. The British raj had delegitimised the Indian education system.
After Macaulay’s Minutes of 1835, the colonial government’s work in education

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
 was primarily motivated by self-serving concerns. While Western education was
spread among Indians, scientific, technical and moral education was largely
ignored.

The Indian reformers believed that to keep up with the times, a modern education
system was needed. NEP 2020 is an ambition and futuristic policy that ensures
opportunities for children to hone their talents by fixing the lacunae in the
education system. The emphasis on skills like analysis, critical thinking, conceptual
clarity and co-curricular and vocations subjects will diversify their learning.
Universal access at all levels of school education will be guaranteed, at it is
proposed that the around two crore children who drop out will be brought back
into the education system.

(a) State any one reason due to which britishers did not make any efforts to
develop Indian Education System.

(b) Even after decades of Independence, Education is still considered as a

challenge in India. Do you agree? Give reasons.

(c) RTE stands for ………… and was introduced in ……………………………..

(d) State to underlying statement of RTE.

(e) What do you mean by Vocationalisation of Education?

Ans. Hints/Solutions are:

(a) They feared that a class of educated Indians might be a threat to their colonial
rule in India

(b) Yes, Education is still a challenge In India because:

i.Low rural access level

ii.Gender discrimination
iii.Privatisation
iv.Low government expenditure allocated

TIWARI TUTORIAL, DORNA ACADEMY | ECONOMICS GURU: RAKESH TIWARI 9310073376, 9910376989
(c) Right to Education Act, 2009

(d) RTE, 2009 aims to make free education a compulsory right for all the children
in the age group of 6-14 years.

(e) Vocationalisation of Education means making education more skills oriented

rather than degree oriented. The course structure should be such that it imparts
vocational/practical skills among students. It should not focus on mere theoretical
concepts.

2. “Paul Romer; won the nobel prize in Economics for his week describing how
important human capital (basic of innovation) is for economic growth of a
country. The concept is particularly useful to track how simple inputs like quality
education, affordable healthcare and some universal motivational value can
easily transform raw human resources into highly productive labour force.”

Answer the following questions, based on the passage above.

(a) What do you mean by Human Capital?

(b) Differentiate between Human Capital. Physical capital and Financial Capital.

(c) “Human Capital Formation and Economic Growth of a nation has a cause-and-
effect relationship”. Do you agree? Justify.

(d) Explain how Human Capital Formation leads to innovation in the economy?

(e) Explain the role of quality education and affordable healthcare facilities in
human capital formation in the economy.

(f) Human Capital Formation was given significant importance in

……………………….(seventh/Sixth/Eighth) five-year plan of India.

Ans. Hints/Solutions are:

(a) It refers to the stock of skills and expertise that are present in the economy at a
particular point of time.

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(b) Human Capital is the stick of skills and expertise in the economy at a particular
point of time. Physical capital refers to the stock of machines, building etc that are
used to produce goods and services. Financial Capital refers to the amount that is
invested in the production activity.

(c) Human Capital Formation helps in increasing the efficiency and productivity of
resources. This increase the utilization of resources. This increases the production
of goods and services and thus, lead to growth in GDP. This is termed as Economic
Growth.

(d) Human Capital Formation increases the skills of individuals. These skills are
then used in research and development, inventions and innovations. This leads to
economic growth of the economy.

(e) Quality education increases the skills and abilities of an individuals which will
help in research and development. Also, a healthy person would be able to use
resources in a much better way as compared to a sick person. Thus, both
education and health are considered as sources or determinants of human capital
formation.

(f) Seventh

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