•  Just as a country can turn physical resources like land into physical capital like factories, similarly, it can also turn human resources like students into human capital like engineers and doctors.
  • In other words, we need good human capital to produce other human capital (say, doctors, engineers…). This means that we need investment in human capital to produce more human capital out of human resources.

Let us understand a little more of what human capital means by posing the following questions:

  • What are the sources of human capital?
  • Is there any relation between human capital and economic growth of a country?
  • Is the formation of human capital linked to man‘s all-round development or, as it is now called, human development?
  • What role can the government play in human capital formation in India?


  • Investment in education is considered as one of the main sources of human capital. There are several other sources as well. Investments in health, on- the- job training, migration and information are the other sources of human capital formation.
  • Like education, health is also considered as an important input for the development of a nation as much as it is important for the development of an individual. Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation.
  • Expenditure incurred for acquiring information relating to the labour market and other markets is also a source of human capital formation.

Human Capital and Economic Growth:

  • Economic growth means the increase in real national income of a country; naturally, the contribution of the educated person to economic growth is more than that of an illiterate person.
  • If a healthy person could provide uninterrupted labour supply for a longer period of time, then health is also an important factor for economic growth. Thus, both education and health, along with many other factors.
  • The Seventh Five Year Plan says, ―Human resources development (read human capital) has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population. Trained and educated on sound lines, a large population can itself become an asset in accelerating economic growth and in ensuring social change in desired directions.


  • We know that ours is a federal country with a union government, state governments and local governments (Municipal Corporations, Municipalities and Village Panchayats). The Constitution of India mentions the functions to be carried out by each level of government. Accordingly, expenditures on both education and health are to be carried out simultaneously by all the three tiers of the government.
  • In India, the ministries of education at the union and state level, departments of education and various organizations like National Council of Educational Research and Training (NCERT), University Grants Commission (UGC) and All India Council of Technical Education (AICTE) facilitate institutions which come under the education sector.
  • Similarly, the ministries of health at the union and state level, departments of health and various organizations like Indian Council for Medical Research (ICMR) facilitate institutions which come under the health sector. 

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