Chapter -6 Human Capital Formation in India in India

6.1INTRODUCTION – HOW PEOPLE BECOME RESOURCE?

The ability of humans to accumulate and share knowledge positions them as a valuable resource. Knowledge acquisition is rooted in education, a process that not only enhances an individual’s social status and instills a sense of pride but also equips them to make informed decisions and fosters innovation. Transforming human potential into human capital involves investing in education and healthcare. Similar to investing in physical capital, investing in people yields returns over time.

6.2 HUMAN CAPITAL

6.2.1 Concept of Human Capital and Human Capital Formation

Human capital denotes the collective skill, ability, expertise, education, and knowledge within a nation at a specific point in time. It encompasses professionals and skilled individuals engaged in the production process. Human capital formation is the ongoing process of augmenting this reservoir of human capital.

In simpler terms, it involves acquiring and increasing the number of skilled and experienced individuals. A robust human capital, represented by professionals such as doctors and engineers, contributes to the generation of additional human capital. This underscores the necessity of investing in human capital to cultivate more valuable resources from the existing human workforce.

Both the formation of physical and human capital results from deliberate investment decisions. In physical capital, entrepreneurs utilize knowledge to assess the anticipated rate of return across various investments, making rational choices. On the other hand, in human capital, individuals are influenced by their peers, educators, and society when deciding on investments in human capital.

6.2.2 Difference between Human Capital and Human Development

Table 6.2 Difference between Human Capital and Human Development

Objective Type Questions

1. What does human capital encompass?

A. Only education

B. Collective skill, ability, expertise, education, and knowledge

C. Only professional skills

D. Physical capital

Answer: B. Collective skill, ability, expertise, education, and knowledge

2. What is human capital formation?

A. The reduction of skilled individuals

B. The ongoing process of depleting human resources

C. The continuous effort to enhance the pool of human capital

D. The elimination of professionals from the workforce

Answer: C. The continuous effort to enhance the pool of human capital

3. In simpler terms, what does human capital formation involve?

A. Reducing the number of skilled individuals

B. Depleting the pool of human capital

C. Acquiring and increasing the number of skilled and experienced individuals

D. Eliminating professionals from the workforce

Answer: C. Acquiring and increasing the number of skilled and experienced individuals

4. What does a robust human capital contribute to?

A. Depletion of resources

B. Generation of additional human capital

C. Reduction in educational investments

D. Elimination of professionals

Answer: B. Generation of additional human capital

5. How does the formation of physical capital differ from human capital?

A. Physical capital involves reducing investments.

B. Human capital involves rational choices by entrepreneurs.

C. Physical capital and human capital have no differences.

D. Human capital decisions are influenced by peers and society.

Answer: D. Human capital decisions are influenced by peers and society.

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