NCERT Summary: Human Capital & Human Development- 1

Human capital and human development are related but distinct concepts. Human capital treats people as productive inputs: investments in education, health and training are valued primarily for their contribution to labour productivity and output. In this view, expenditure on education and health is justified when it increases the production of goods and services. By contrast, human development treats people as ends in themselves: education and basic health are important for individual wellbeing regardless of their effect on productivity. From the human development perspective, every person has a right to basic education and basic health care because these expand the real freedoms and choices available to individuals, not merely because they raise output.

Human Capital Formation in India: Great Prospects

Human capital formation refers to the accumulation of skills, knowledge, health and other capabilities that increase the productive potential of individuals. Major sources of human capital formation include investments in formal education, health care, on-the-job training, migration (which exposes people to better opportunities and knowledge) and access to information. These investments raise individual capabilities and, collectively, contribute to the nation's economic growth and social development.

Federal structure and responsibility for education and health

India is a federal polity with the Union, state governments and local governments (Municipal Corporations, Municipalities and Village Panchayats) sharing responsibilities. The Constitution assigns functions to different tiers of government, and expenditures on education and health are typically made simultaneously by the Union, state and local bodies. This multi-level responsibility affects financing, standards, regulation and delivery of services across the country.

Why government intervention is necessary in education and health

• Education and health services generate both private benefits (to the individual) and social benefits (to society). Markets may under-provide these services because private returns do not capture external benefits.
• Expenditure on education and health produces long-term, often irreversible effects. Poor inputs at a young age (for example, inadequate schooling or health care) can cause harm that is costly or impossible to reverse later, creating a rationale for public provision or regulation.
• There is often information asymmetry: consumers cannot always judge the quality or full cost of education and health services. This can give providers market power and lead to exploitation; government must set and enforce standards and protect consumers.
• Equity and rights: when basic education and health are considered rights, government provision (or strong subsidy) ensures access for poor and socially disadvantaged groups who cannot afford market services.
• Market failures such as monopolies, underinvestment in early childhood, and credit constraints (households cannot borrow easily to finance education) justify public finance and intervention.

Examples illustrating market failure and the need for public action

If a child is enrolled in a school that delivers poor-quality education or receives inadequate primary health care, the family's ability to shift to another institution may be limited, and the damage done to the child's future prospects may be substantial. Similarly, when private providers withhold information about quality or cost, parents cannot make informed choices. Regulatory oversight, public provision and targeted subsidies are standard policy responses.

Regulatory and academic institutions

At the Union and state level, ministries and departments of education and health provide policy direction. Important educational institutions and regulators include the National Council of Educational Research and Training (NCERT), the University Grants Commission (UGC), and the All India Council for Technical Education (AICTE). In health research and regulation, bodies such as the Indian Council for Medical Research (ICMR) play a key role. These organisations set norms, undertake research, support curriculum development and regulate professional standards.

Education Sector in India

Measures of government expenditure on education

Government expenditure on education is commonly presented in two ways:

• as a percentage of total government expenditure, which indicates the priority accorded to education in public budgets;
• as a percentage of Gross Domestic Product (GDP), which indicates how much of national income is being committed to education.

In recent years, total public expenditure on education (Centre and States combined) has remained around 4.4-4.6% of GDP, which is still below the 6% of GDP benchmark. Over the same period, education expenditure as a percentage of GDP increased from 0.64% to 4.02%. The rise has not been uniform; the series shows irregular increases and occasional declines. Private spending by households and philanthropic organisations adds substantially to the total resources devoted to education but is not captured in the government figures.

Patterns across levels of education

• Elementary education consumes the largest share of total public education expenditure.
• Tertiary (higher) education receives a smaller share overall, yet expenditure per student is higher in tertiary education than in elementary education because higher education institutions are more resource-intensive.
• Expansion of school education requires more trained teachers, which in turn requires investment in higher education and teacher training institutions; hence all levels of education need adequate funding.

Inter-state variation

Per capita public education expenditure varies widely across states. For example, per capita annual education expenditure has been reported as high as Rs. 34,440 in Lakshadweep and as low as Rs. 386 in Bihar. Such large differentials create disparities in educational opportunities and outcomes across states.

Recommended levels of expenditure

The Education Commission (1964-66) recommended that at least 6% of GDP should be devoted to education to achieve a rapid improvement in educational attainment. Decades later, the target of 6% remains widely cited as a benchmark for adequate public investment in education.

Major policy milestones and funding initiatives

• In December 2002, through the 86th Amendment of the Constitution, free and compulsory education was made a fundamental right for all children in the age group 6-14 years.
• The Tapas Majumdar Committee (appointed in 1998) estimated an expenditure of around Rs. 1.37 lakh crore over ten years (1998-99 to 2006-07) to bring all children aged 6-14 into the school system. These estimates were made prior to the implementation of the Right to Education Act, 2009, and do not reflect current cost structures or inflation-adjusted requirements.
• Compared with the recommended 6% of GDP, the actual level of public education expenditure of a little over 4% of GDP has been judged inadequate. Reaching the 6% goal has been stated as an objective in policy discussions.
• Since 2018, the earlier education cess has been replaced by a 4% Health and Education Cess, the proceeds of which are no longer exclusively earmarked for education; expected revenue was around Rs. 4,000-5,000 crore, earmarked for elementary education. The government also announced higher outlays for tertiary education and loan schemes to support student access to higher studies.
• The National Education Policy (NEP) 2020 reiterates the target of public spending of 6% of GDP on education and emphasises foundational literacy, early childhood care, and outcome-based learning.

Equity considerations

In a developing country with a sizeable population below the poverty line, many households cannot afford basic schooling or basic health care. When basic education and health care are treated as rights, public provision and targeted subsidies are necessary to ensure access for the poor, the marginalised and socially disadvantaged groups. Public expenditure must therefore be assessed not only for adequacy but also for equity in distribution.

Education Achievements in India

Common indicators of achievement in education include adult literacy rate, primary education completion rate and youth literacy rate. These indicators capture different aspects of educational attainment and help monitor progress over time. Comparative statistics for years such as 1990 and 2000 are used to assess trends and to evaluate the impact of policies and programmes.

The image/table above summarises the key educational indicators and their changes over the period under review.

Concluding notes: policy implications and the way forward

Human capital formation is central to both economic growth and human development. Policy implications that follow from the above analysis include the following:

• Public expenditure on education should be raised towards the benchmark of 6% of GDP, while ensuring efficient and equitable use of resources.
• Investment decisions must balance expansion (access) with improvement in quality, teacher training and learning outcomes.
• State-level disparities in per capita expenditure require targeted transfers and capacity building to ensure more uniform opportunities across regions.
• Regulation and quality assurance are necessary where private provision is substantial, to protect learners from poor quality and exploitation.
• Policies should integrate health and nutrition with education, particularly in early childhood, since health and education together strengthen human capital formation.

Strengthening human capital requires sustained funding, sound regulation, and policies that explicitly address access, quality and equity. Both the human capital and human development perspectives point to the same operational conclusion for policymakers: investments in education and health are not only productive but also intrinsic to the wellbeing and rights of citizens. Despite significant expansion in access, India's education challenge in 2025 lies in adequate financing, quality of learning, and reduction of regional disparities, rather than enrolment alone.