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Human Capital Formation Class 12 Notes Economics

Human capital formation class 12 notes cover a wide range of topics and subtopics according to the latest syllabus specified by the CBSE board for class 12th. It assists you with the definition of human capital formation and ranges from its sources to its importance. These notes also help you with understanding the interrelationship between human capital formation and economic development and are useful for last-minute revision.

Human Capital Formation Class 12 Notes

Human Capital Formation
Sources of human capital formation
Problems faced by human capital formation
Physical and Human Capital
Human Capital formation ad economic growth
Human Capital and Human development
India as a knowledge-economy
The education sector of India

Human capital formation

Human Capital refers to the stock of skill, ability, expertise, education, and knowledge embodied in the people/human being of a nation at a point in time.
It is a stock of professionals and skilled people like engineers, doctors, management personnel, teachers and workers, etc. in a nation at a point of time who are engaged in the production process and contribute to gross domestic product.
We need investment in human capital to produce more human Capital out of resources.
Human capital formation is the process of adding to the stock of human capital over time.
Human capital formation is a process of acquiring and increasing the number of skilled, educated, and experienced people who are important for the economic, social, and political development of the country.

Sources of Human capital formation

(1) Expenditure on Education

Investment in education is considered the main source of human capital formation.

Education is the process of teaching, learning, and training especially in schools or colleges to improve knowledge and develop skills.
Education;
Confers higher-income capacity on people.
Provides knowledge to understand the changes taking place in society.
Stimulates invention and innovation.
Facilitates adoption of new technologies.
Expenditure on Education is a way of enhancing and enlarging a productive workforce in a country.
The Labour skill of an educated person is more than an uneducated person because education generates technical skills and creates manpower that is suited for improving labor productivity.
Spending on education by individuals is similar to spending on capital goods by companies to increase future profit over some time.
The difference between the benefit and cost of education measures the market value of human capital formation.

(2) Expenditure on Health

Health is a state of complete physical, mental and social well-being.

Expenditure of Health includes;
Preventive medicine (vaccination)
Curative medicine (during illness)
Social medicine (spreading of health literacy)
Provision of clean drinking water
Good sanitation facilities
Poor health and underemployment adversely affect the quality of manpower because sick labor, without access to medical facilities, is forced to abstain from work, which causes loss in productivity.
On the other hand, adequate food and proper nourishment to people along with adequate health and sanitation facilities lead to improvement of quality of human capital.
Thus, a healthy person contributes to a country’s GDP more than an unhealthy person.
Health expenditure directly increases the physical and mental ability of human beings and produces a healthy labor force and thus, it is an important source of human capital formation.

(3) Expenditure on the Job Training

Many firms spend on giving on the job training to their workers and it may take place in two following ways;
Workers may be trained in the firm itself under the supervision of a skilled worker.
Workers may be sent for off-campus training.
On job training
Enable workers to absorb new technology and ideas.
Help workers to enhance their specialized skills.
Help workers acquire new technological skills.
It increases the skills and efficiency of the workers and further leads to an increase in production and productivity.
The return of expenditure on such training in the form of enhanced labor productivity is more than the cost of it.

(4) Expenditure on Migration

People migrate from one place to another in search of jobs that fetch them higher salaries as compared to their native incomes.

Unemployed people from rural areas migrate to urban areas in search of jobs (leading to utilization of inactive skills) and technically qualified persons like doctors, engineers, etc. migrate to other countries for higher salaries (leading to better utilization of skill).
Migration involves the cost of transportation and cost of living in the migrated place but increased earnings at the new place outweigh the cost of migration.
Thus, migration is a source of human capital formation as it facilitates the utilization of inactive skills and fuller utilization of skills.

(5) Expenditure on acquiring information

People spend to acquire information regarding the labor market and educational institutions. For example, the level of Salary is associated with various types of jobs so that they can choose the right job. Or, educational institutions which are providing the right type of educational skill, their standard, and cost, etc.
This kind of information is necessary to make decisions regarding investment in education as well as for efficient utilization of the acquired skills and enable people to actualize their productive potential.
Thus, expenditure on acquiring all sorts of information regarding labor markets and other markets like education and health is also a source of human capital formation.

Problems faced by human capital formation

Insufficient resources
Rising population
Brain drain- Skilled and educated persons who have high caliber when migrating to developed countries in search of better job opportunities.
Lack of proper manpower planning.
Insufficient on the job training in the agricultural sector

Physical and human capital – Human Capital Formation Class 12 Notes

Physical Capital	Human capital
It refers to man-made means of production or all those inputs which are required for production like machines, buildings, etc.	Human capital refers to the stock of skill, ability, expertise, education, and knowledge embedded in the people of a nation at a point in time.
It is tangible and can be sold in the market	It is intangible and cannot be sold in the market; only the services of human capital are sold.
It is separable from its owner.	It is inseparable from its owner.
Depreciates over time due to continuous use or due to change in the pattern of demand and technology.	It generally depreciates with aging but depreciation can be reduced with continuous investment in health and education.
It is completely mobile between countries	It is less mobile between countries as compared to physical capital
It creates only private benefit	It creates both private and social benefits
It represents the productive capacity of a nation	Human capital is the cause behind physical capital.

Human capital formation and Economic growth – Human Capital Formation Class 12 Notes

Casualty between human capital formation and economic growth flows in either direction.
That is, higher income causes the building of a high level of human capital and vice-versa,i.e. high level of human capital causes growth of income.
Human capital is important in many ways;
It makes the efficient use of physical capital stimulates higher productivity and production.
It stimulates innovation and invention.
It brings a positive change in the outlook and attitude of people.
It improves the quality of life.
It ensures a higher rate of participation and social justice.
There is a cause-and-effect relationship between human capital formation and economic growth. Human capital formation increases efficiency and productivity by enhancing knowledge and skills which lead to economic growth. On the one hand, economic growth implies an increase in per capita income which facilitates higher investment in education and health and promotes human capital formation.

Human capital and human development

Human capital	Human development
It is a narrow concept that treats human beings as a means to achieve an end of higher productivity.	Human development is a broader concept that treats human beings as ends.
It considers education and health as a means to increase labor productivity.	It is based on the idea that education and health are integral to human beings. Only when people can read and apply their knowledge to derive maximum benefit will they be able to lead a long and healthy life.

India as a knowledge-Economy

The Indian software industry has been showing an impressive record over the

past two decades. Entrepreneurs, bureaucrats, and politicians are now advancing views about how India can transform itself into a knowledge-based economy by using information technology (IT). There have been some instances of villagers using e-mail which are cited as examples of such transformation. Likewise, e-governance is being projected as the way of the future.

State of human capital formation in India

Education Sector of India – Human Capital Formation Class 12 Notes

Importance of education

Education is a very important source of human capital formation. It is a wider term than literacy.
Importance of education
It produces good and responsible citizens of the country.
It facilitates the efficient use of natural and human resources.
It develops the mental horizon of the pound helps PSP in promoting rational and scientific thinking of the people.
It enables greater participation of the people in the process of economic growth or development.
It helps in developing the necessary skills for the smooth functioning of the economy.
Develops science and technology and also stimulates invention and innovation.

Need for government intervention in education and health

There are many reasons why the government should intervene in the process of providing education and health facilities to the people. Some of them are;

People do not have complete information about the quality of the services and their cost.
Expenditure on education and health make a long-term impact and they cannot be easily reversed.
Education and healthcare services create both private and social benefits The existence of both private and public institutes in education and health services is essential.
The providers of education and health services may acquire monopoly power and may exploit people. A large section of our population is below the poverty line. So, they cannot afford to access expensive education and healthcare facilities. Accordingly, these services would remain beyond the reach of.

Thus, it is essential

Government should provide these services to people free of cost or at a reasonable cost.
Government should ensure that the prosecutor provides high-quality services at the correct price.

Regulatory Authority of India

Education Services

Ministries of education at the union and state level.
National council of educational research and training. (NCERT).
University grants commission ( UGC).
All India council of technical education. ( AICTE)

Health sector

Ministries of health at union and state level.
Indian council for medical research( ICMR).

Expenditure on Education

Government expenditure on education can be expressed in two ways:

As a percentage of total government expenditure- It indicates the importance of education in government schemes or policies.
As a percentage of GDP- indicates the commitment of the government to the development of education.

Elementary education takes a major share of total education expenditure and the share of higher education is the least.
However, the share of higher education in India is least but student expenditure in higher education is higher than elementary education. It does not mean that final resources should be transferred from tertiary to elementary education. As we expand school education we need more teachers who are trained in higher educational institutes.
In December 2009 the Government of India made free and compulsory education a fundamental right of all children in the age group of 6 to 14 years. So, to achieve this aim the government needed an estimated expenditure ( recommended by the Tapas Majumdar committee) of around ₹1.37 lakh crore over 10 years.
In the union budget, the government provides a 2% education cess on all union taxes and the government is estimated to get revenue of rupees 4000 to 5000 crore.
The education commission(1964-66) had recommended that 6% of total GDP should be spent on education to make a more noticeable remark.

Problems faced by the Education sector of India

High illiteracy rate
Gender bias
Low access in rural areas
Privatization
Low quality of education

Educational achievements in India

(1)Elementary education-

Elementary education covers students from 1st to 5th class in the age group of 6-11 years (primary education) and from six to eight years in the age group of 11 to 14 years( middle education).
Thus, elementary education is the sum of primary and middle education.
The gross enrolment ratio which stands for several students enrolled / total number of children in the age group of 6 to 14 years, increased from 43 % to 96.7 4 cm in 2009 – 10.

(2) Secondary education-

Serves as a bridge between primary and higher education and prepares a young person between the age group of 14 to 18 years for entry into higher education.
Institutions in secondary education have increased from 7.4 thousand(1950-1951) to 2.52 lakh in (2015-2016) and the number of students has also increased from 15 lakh (1950-1951) to 3.2 crores (2015-2016).
Policies to promote secondary education;
National council of educational research and training.
Navodaya Vidyalaya
Kendriya Vidyalaya

(3)Higher education –

It refers to general, managerial, technical, medical, and other professional education. It is most important for a country because it is a powerful tool for building a knowledge-based society.
Universities providing Higher education have increased from 27 (1950-1951) to 799 in (2015-2016) and the number of students has also increased from 3.6 lakh (1950-1951) to 346 lakh (2015-2016).
Policies to boost higher education;
University grants commission
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Prospects of education in India

Education for all: Still a distant dream
Though literacy rates for both adults as well as youth have increased, still the absolute number of illiterates in India is as much as India’s population was at the time of independence.
Gender equality: better than before
The differences in literacy rate between males and females are narrowing signifying a positive development in gender equity; still, the need to promote education for women in India is imminent for various reasons such as improving economic independence and social status of women and also because women education makes a favorable impact on the fertility rate and health care of women and children.
Therefore, we cannot be complacent about the upward movement in the literacy rates and we have miles to go in achieving cent percent adult literacy.
Higher education: A few takers
The education pyramid of India is steep. That means the number of students reaching the level of higher education is less than the number of students enrolled at the primary level.
Moreover, the level of unemployment among youth is the highest.

With the help of Human capital formation class 12 notes, students get to know about various problems and importance related to Human capital formation in India. It consists of information and reliable data which students can find reliable and additional information too for a better understanding of the topics.

CBSE Economics Class 12 Notes Term I Syllabus

Part A: Introductory Macroeconomics

Part B: Indian Economic Development

Development Experience (1947-90) and Economic Reforms since 1991:- 12 Marks

Current challenges facing Indian Economy – 10 Marks

Poverty Class 12 Notes
Human Capital Formation Class 12
Rural Development Class 12 Notes