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Human Capital and Economic Growth

As mentioned earlier, the labour of an educated person is more than that of an uneducated worker. Since economic growth is the increase in the real national income of a country the contribution of an educated person would obviously be greater than that of an uneducated person. Also, a healthy person would provide uninterrupted labour supply and hence would contribute more to the growth of a nation. Therefore, health is also a very important factor of economic growth. Economic growth is also affected by on the job training and migration which contribute to the increased income of individuals.

An increased productivity of the human capital contributes significantly towards increasing the labour productivity and also encourages innovations and helps in the absorption of new technologies. Education provides knowledge and helps in understanding the changes that happen in the society. Education acts as a facilitator to promote new inventions and innovations. An educated labour force also encourages the adoption of new technologies.

To prove that increase in human capital causes economic growth is not easy. Measuring the growth is a difficult task. For example, effectiveness of education cannot be measured in terms of students-teacher ratio and enrolment does not talk about the quality of education. Similarly, health services cannot be measured in terms of money or mortality rates or life expectancy. Hence if we use the above as indicators of human growth, we can only conclude that though the human capital has grown at a fast rate, the increase in the per capita income has not been as fast. So there are evidences to believe that the causality between human capital and economic growth flows in both the ways. This implies that growth in income causes growth in human resources and the vice versa.

India has recognized the importance of the growth on human capital a log time ago and there has been mention about it in the Seventh Five Year Plan. It is not very easy to establish a relation of cause and effect from the growth of human capital to economic growth but we can see for ourselves that growth in one of these areas has resulted in growth in the other area too.

Two recent and independent reports about the Indian economy have predicted that India will grow faster due to her strength in the formation of human capital. In a report on Global Growth Centres given by the Deutsche Bank (German ), India has been identified as one amongst four major growth centres in the world by 2020. It had further stated that they supported the view that the increase in human capital was very essential for an increased growth rate. With respect to India, they have predicted that between 2005 and 2020, a 40% rise in the average years of education would happen. World Bank came out with a report called “India and the Knowledge Economy: Leveraging Strengths and Opportunities”, has stated that India should change to a knowledge economy like Ireland and if we do so our per capita income would rise by $1000USD in 2002 to US$3000 in 2002. It has also added that India has all the key components required to make such a transition since we have a critical mass of skilled workers, a well functioning economy and a very diversified science and technology infrastructure. Thus the two reports have pointed out that the Indian Economy would grow rapidly with a rapid growth in our human capital.

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