State of Human Capital Formation in India

This section examines how far human capital has actually been built in India. Human capital comes from investment in education, health, on-the-job training, migration and information, and of these education and health are the most important. Since the health sector is analysed in a later chapter, the focus here is on education.

A federal responsibility. India is a federal country with a union government, state governments and local bodies such as municipal corporations, municipalities and village panchayats. The Constitution lays down the functions of each tier, and spending on both education and health is meant to be carried out by all three tiers together.

Why the government must intervene. Education and health services create both private and social benefits, which is why both private and public institutions exist in these markets. Government intervention is nonetheless essential for two main reasons:

• Spending on education and health makes a long-term impact that cannot easily be reversed. If a child is admitted to a school or health centre that does not deliver the required services, a good deal of damage is done before the child can be shifted elsewhere.
• Individual users often lack full information about the quality and cost of these services. This lets providers acquire monopoly power and indulge in exploitation. The government's role is to ensure that private providers meet the standards it sets and charge the correct price.

Institutions that facilitate the sector. In education, the union and state education ministries, the education departments, and organisations such as the NCERT, the University Grants Commission (UGC) and the All India Council of Technical Education (AICTE) support the institutions in this sector. In health, the union and state health ministries, the health departments, and organisations such as the National Medical Commission and the Indian Council for Medical Research (ICMR) do the same. …