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INDIAN ECONOMIC DEVELOPMENT
- Harjas Singh
CHAPTER – 5 HUMAN CAPITAL FORMATION
Q3. Why do we observe regional differences in educational attainment in India?
A1. India is a land of diverse culture, religions and communities. Every region has its own customs and
tradition. Also, as we go from one state to another, we find many differences in terms of language, habit,
culture, need, climate, etc. Due to these differences, there exist regional differences in the educational
attainment in our country. There exists a difference in the pattern of education across India. Some regions
lack educational facilities whereas some give undue importance to education. For example, states like Bihar,
Rajasthan, U.P and Arunachal Pradesh are educationally backward whereas, states like Kerela, Tamil Nadu and
Uttranchal have higher literacy rates. Generally, it can be observed that the states that lack employment
opportunities and where the standard of living is close to the subsistence level, education is given lesser
importance. People in such states are engaged either in agricultural sector or informal sector that has very
less to do with education. The opportunity cost of sending children to school in such states is very high than
employing them. The neglect of education in these regions is primarily because of the low standard of living
and poverty. These people cannot afford to send their children to schools and, in fact, employ them either in
the farm lands or in informal sector. Further, it can also be observed that male children across India have
lopsided access to education compared to female children. Besides the above factor, there are other factors
like custom, climate, etc. that explains the regional differences in educational attainment in India.
Q10. Establish the need for acquiring information relating to health and education expenditure for
the effective utilisation of human resources.
A10. The degree of availability of jobs, salaries and admissions related information plays an important role in
the determination of human capital. The availability of jobs and admissions related information not only help
the students to opt for the best choice according to their interest areas but also leads to the effective
utilisation of human skills and knowledge. Some of the important medium of catering different information
related to jobs, eligibility criteria, posts and salaries are Employment News (Rozgar Samachar), Employment
Exchanges, various TV programs and government and non-government websites. While on the one hand,
expenditures on education enhance human skills and their utilisations, on the other hand, the expenditure on
health improves health, efficiency, quality of living and life expectancy of people. The expenditure incurred on
the availability of medical information and health awareness determines the health of the people. The
acceptability and the use of medical information and family welfare programmes are often obstructed by lack
of its publicity and promotion. Often people are reluctant to opt for various health measures due to the lack
of complete knowledge and information. For example, few years back, people knew very little about polio
and about its vaccination. But due to the constant efforts by various government and non-government
organisations under the Pulse Polio Immunisation Program, people are now well aware of polio. Therefore, it
is due to the continuous publicity and various awareness campaigns, this program have gained public
consciousness. Thus, the expenditure on the spread of information (of education and health) determines the
effectiveness and efficacy of human capital.
Q11. How does investment in human capital contribute to growth?
A11. Human capital and economic growth goes hand in hand. Human capital formation accelerates the
economic growth whereas economic growth in turn facilitates human capital formation. The interrelationship
between economic growth and human capital formation can be explained with the help of the below
1. Increase in the Productivity of Physical Capital: Physical capital refers to the stock of produced means of
production. It consists of machines, production plants, tools and equipments. The skilled workers handle the
productive assets in such a manner that these not only enhance their productivity and but also lead to an
efficient utilisation of the physical capital. When the productivity increases, the pace of growth is
2. Innovation of Skills: An educated person is more productive and skillful. He has the potential to develop
new skills and innovate new techniques that can be more efficient and productive. Greater the number of
skilled and trained personnel, greater will be probabilities of innovations.
3. High Participation Rate and Equality: Human capital endowed with higher technical skills and innovating
power is more productive and efficient. This increases the participation of more people in the process of
economic growth and development. Higher the participation rate, higher is the degree of social and economic
equality across the country.
Thus, we can conclude that human capital and economic growth goes hand in hand. Human capital formation
accelerates the economic growth whereas economic growth also facilitates human capital formation.
Q12. There is a downward trend in inequality world-wide with a rise in the average education levels.
A12. Theoretically, there is a negative relationship between education level and degree of inequality. This
relationship has been practically established across the world in recent decades. Education not only imparts
technical skills but also at the same time enhances productivity of a person. An educated person, endowed
with higher productivity and efficiency enjoys relatively higher income earning capacity. The higher income
earning capacity and greater acceptability of modern techniques raise the standard and quality of living.
Distribution of income has become less skewed and gap between the rich and the poor has been narrowing
slowly. Gradually, the importance of education is being realised world-wide and, consequently, governments
of different countries have been investing heavily in the education sector. With the rise in average education
levels, not only inequality but also other problems like, poverty, underutilisation of resources and inferior
standards and quality of life have been minimised.
Q13. Argue in favour of the need for different forms of government intervention in education and
A13. India being a federal country, expenditures on both education and health are carried out by all the three
tiers of the government. In India, the education and health sectors services are provided both by the public as
well as by the private institutions. While, the private institutions are guided by the market and profit motive,
on the other hand, the public institutions are guided by the main motive of rendering services and to enhance
human capital. As the cost of education and health facilities provided by private institutions is higher, so it is
difficult for the majority of population to avail these services because of their economic inability. Thus, it is
very important for the government to provide quality education and health facilities to this section of the
population. Moreover, private institutions are unable to reach remote and rural areas where people lack
initiative for education and health. In this context, the role of government to encourage them and to make
them aware of advantages of education and health cannot be substituted. Also, there are some
underprivileged sections of population like, ST, SC, OBC, the interests of whose can only be protected by the
interference of government. Moreover, people as individual consumers do not have complete information
about the quality of services and the related costs. This often leads to exploitation of people. Hence,
government intervention in health and education sector is must in order to enhance the quality of human
Q19. What are the main problems of human capital formation in India?
A19. India is faced with many problems of human capital formation. These are as follows:
i. Rising Population: The rising population exerts pressure on the available limited resources. In other words, it
reduces the per head availability of facilities like housing, sanitation, education, power supply, etc. So, the
pressure on these facilities retards the quality of life and lowers the capacity to acquire specialised skills and
ii. Brain Drain: People migrate from one place to another in search of better job opportunities and handsome
salaries. This puts a serious threat to the process of human capital formation. It leads to the loss of quality
people like doctors, engineers, etc. who have high caliber and are rare in a developing country. The cost of
such loss of quality human capital is very high.
iii. Improper Man Power Planning: India lacks in proper man power planning. No major efforts have been
taken to maintain the demand-supply balance of the rising labour force. So, it leads to the wastage and
misallocation of human skills.
iv. Low Academic Standards: In order to spread education, various educational institutions are opening up
regardless of deficiency in their standards. These institutions impart inferior quality of education and skills and
that in turn causes deficiency in the productivity and efficiency. This is one of the important hindrances for the
development of quality human capital formation.
CHAPTER – 2 INDIAN ECONOMY FROM 1950 - 1990
Q9. Does modernisation as a planning objective create contradiction in the light of employment
A9. No, modernisation as a planning objective does not contradict employment generation. In fact both
modernisation and employment generation are positively correlated. While modernisation refers to the use of
new and modern technology in production process that may make some people lose their jobs in the initial
stages. But gradually, the use of modern technology and input will raise the productivity and, consequently,
the income of the people that will further raise the demand for goods and services. In order to fulfill this
increased demand, there will be more job opportunities that will lead more people to be hired and, hence,
more employment opportunities will be generated. Hence, both modernisation and employment generation
are not contradictory but are complementary to each other.
Q14. While subsidies encourage farmers to use new technology, they are a huge burden on
government finances. Discuss the usefulness of subsidies in the light of this fact.
A14. Subsidy means availing some important inputs to farmers at a concessional rate that is much lower than
its market rate. During 1960s, in order to adopt new technology HYV seeds and use of modern fertilisers and
insecticides, farmers were provided inputs at a subsidised rate. Thus, the public sector role was needed to
invest heavily, so as to raise the income of people that will in turn raise the demand and so on.
The following arguments are given in favour of subsidy:
1) Subsidy is very important for marginal land holders and poor farmers who cannot avail the essential farm
inputs at the ongoing market rate.
2) Subsidy in 1960s was basically an incentive for the farmers to adopt modern techniques and vital inputs like
fertilisers, HYV seeds, etc. The subsidy was mainly of convincing and lucrative nature so that the farmers do
not hesitate to use these modern techniques.
3) Subsidy is generally provided to the poor farmers with the motive of reducing inequality of income
between rich and poor farmers and to promote an egalitarian distribution of income.
4) It is argued that the adoption of new technology and techniques are not risk free and only daring farmers
are only willing to adopt them.
The following arguments are given against subsidy:
1) It is generally argued that subsidy favours and benefits fertiliser industries than the farmers. Subsidies
provide a protective shield against the market conditions and, consequently, these industries need not to
bother about their market share and competition
2) Subsidies are also enjoyed by the potential farmers who do not need them. This often leads to the
misallocation and wastage of the scarce resources.
3) Subsidies, if provided at a much lower rate than the market rate may lead to the wastage of resources. For
example, subsidised electricity leads to the wastage of energy.
4) There is a general consensus that in order to assess the benefit and feasibility of a particular technique,
subsidy should be provided but once the performance has been judged subsidies should be stopped.
Hence, based on the above pros and cons, we can conclude that although subsidies are very useful and
necessary for poor farmers and to overcome uncertainties associated with farming, it put an excessive burden
on the scarce government finances. Thus, a proper planning, suitable reforms and allocation of subsidies only
to the needy farmers is required.
CHAPTER – 4: POVERTY
Q4. How can creation of income earning assets address the problem of poverty?
A4. The income earning assets are those assets the ownership of which are controlled and owned by the
members of a household. These are land, capital, labour and different levels of skills. Poverty and inequality of
income arises due to improper distribution of and access to such income-earning assets. The labour skills of
the poverty-trodden population are usually traditional and poor in quality that consequently leads to poor
income and employment opportunities. Moreover, a substantial proportion of population is engaged in the
small scale production that often lacks capital and modern technology. Consequently, such techniques
directly hamper the income earning capabilities of small scale industries. In addition to this, poor people often
lack access to social services like proper medical and health care facilities, better education, proper sanitation,
etc. The lack of access to such social services affects health, productivity and finally income earning
capabilities of the poor.
In order to alleviate the problem of poverty, the role of income earning assets cannot be substituted. There
are various measures that can create income earning assets for the poor people like providing proper access
to easy credit, capital, monetary assistance, imparting technical skills, allotment of land to the landless and
marginal farmers and better access to education, health services along with better access to information and
support services for increasing their productivity. All these measures directly or indirectly contribute positively
to the quality of human capital and their endowment of income-earning assets. This in turn leads to increase in
the income opportunities and earning capabilities, thereby, contributing to the alleviation of poverty.
CHAPTER – 3 LIBERALISATION, PRIVATISATION, GLOBALISATION – An appraisal
Q1. Do you think outsourcing is good for India? Why are developed countries opposing it?
A1. The following points suggest that outsourcing is good for India.
1. Employment: For a developing country like India, employment generation is an important objective and
outsourcing proves to be a boon for creating more employment opportunities. It leads to generation of
newer and higher paying jobs.
2. Exchange of technical know-how: Outsourcing enables the exchange of ideas and technical know-how of
sophisticated and advanced technology from developed to developing countries.
3. International worthiness: Outsourcing to India also enhances India’s international worthiness credibility.
This increases the inflow of investment to India.
4. Encourages other sectors: Outsourcing not only benefits the service sector but also affects other related
sectors like industrial and agricultural sector through various backward and forward linkages.
5. Contributes to human capital formation: Outsourcing helps in the development and formation of human
capital by training, imparting them with advanced skills, thereby, increasing their future scope and their
suitability for high ranked jobs.
6. Better standard of living and eradication of poverty: By creating more and higher paying jobs, outsourcing
improves the standard and quality of living of the people in the developing countries. It also helps in reducing
7. Greater infrastructural investment: Outsourcing to India requires better quality infrastructure. This leads to
the modernisation of the economy and larger investment by the government to develop quality infrastructure
and develop quality human capital.
However, Outsourcing to India is good but developed countries oppose this because outsourcing leads to the
outflow of investments and funds from the developed countries to the less developed countries. Also the
MNCs contribute more to the development of the host country than the home country. Further, outsourcing
reduces the employment generation in the developed countries as the same jobs can be done in the less
developed countries at relatively cheap wages. Moreover, this leads to job insecurity in the developed
countries as at a point of time jobs can be outsourced to the developing countries.
Q13 What are the major factors responsible for the high growth of the service sector?
A13 The major factors that led to the growth of service sectors in India are as follows;
1. High demand for services as final product: India was a virgin market for service sector. So, when service
sector started booming due to business outsourcing from the developed countries to India, there was very
high demand for these services especially for banking, computer service, advertisement and communication.
This high demand in turn led to a high growth rate of service sector.
2. Liberalisation and economic reforms: The growth of Indian service sector is also attributable to the
liberalisation and various economic reforms that were initiated in 1991. Due to these reforms, various
restrictions on the movement of international finance were minimised. This led to huge inflow of foreign
capital, foreign direct investments and outsourcing to India. This encouraged the service sector growth.
3. Structural transformation: Indian economy is experiencing structural transformation that implies shift of
economic dependence from primary to tertiary sector. Due to this transformation, there was increased
demand of services by other sectors which y boosted the service sector.
4. Advanced technology and growth of IT: The advancements and innovations in the IT sector enabled the
use of internet, telecommunication, mobile phone and electronic transactions across different countries. All
these contributed to the growth of the service sector in India.
5. Increased volume of trade: Low tariff and non-tariff barriers on imports by India are also responsible for
high growth rate of service sector. The foreign trade reforms enabled the domestic products to interact and
compete in the international markets.
6. Cheap labour and reasonable degree of skill in India: Due to the availability of cheap labour and reasonable
degree of skilled man power in India, developed countries found outsourcing to India feasible and profitable.
The business outsourcing in itself provides substantial encouragements (like development of human capital
that requires services like good coaching centers and reputed institutions, etc.) to the growth of service
Apr. 17, 2019
Sep. 1, 2015
Aug. 25, 2015
Gives a complete answers of CBSE Class XI Economics NCERT.
Made by School Topper and Economics Topper