Human capital, growth and human development

Human capital is different from physical capital (machines, buildings):

• It is intangible: it lives in people's minds and hands.
• It cannot be separated from its owner: you cannot sell your skill and keep it too.
• It is less mobile across countries than physical capital, because of rules on nationality and culture.
• It depreciates with age (people forget, or skills become outdated), but it can be renewed by continued learning.
• It gives social benefits as well as private ones. An educated person benefits not only himself or herself, but also others, for example by spreading good health habits (external benefits). Physical capital gives only private benefits.

Human capital raises productivity and encourages innovation. But the evidence that more human capital causes faster growth is not clear-cut (it is 'nebulous'). Causality probably runs both ways: more educated people raise income, and higher income lets people spend more on education.

India has made real progress since independence. Between 1951 and today, real income per head has risen more than twelve-fold, infant mortality has fallen from 146 to 28 per thousand, and literacy has risen from about 17 to 78 per cent (Table 4.1).

Human development goes further than human capital. Human capital sees education and health as means to raise output. Human development sees people as ends in themselves: education and health matter because they make people's lives better and widen their choices, whether or not they raise output. In this view, basic education and health are rights.