INTRODUCTION

Definition: The development of human resources means an increase in the quality of human beings, which helps in the process of growth and development of the economy.

Physical Capital and Human Capital

  • Physical Capital: It includes all those inputs, which are required for further production, like plant and machinery, factory, buildings, raw materials, etc.
  • Physical capital is needed to make use of physical resources.
  • Its accumulation is quite important for the economic growth of a country.
  • The ownership of physical capital is the outcome of the conscious decision of the owner the entrepreneur possesses the knowledge to calculate the expected rates of return to the range of investments and then rationally decides which one of the investments should be made.
  • Physical capital formation is mainly an economic and technical process
  • Human Capital: It refers to the stock of skill, ability, expertise, education and knowledge embodied in the people.
  • Human Capital is needed to make effective use of physical capital.
  • There is a need for investment in human capital to produce more human capital out of human resources.
  • Societies need sufficient human capital in the form of competent people who have themselves been educated and trained as professors and other professionals. In other words, we need good human capital to produce other human capital (say, doctors, engineers, etc.)
  • 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. Both forms of capital formation are outcomes of conscious investment decisions.

Human Capital creates both Private and Social Benefits

  • The nature of benefits from human capital is different from that of physical capital.
  • Human Capital benefits not only the owner but also the society in general. For example, an educated person can effectively take part in a democratic process and contribute to the socio-economic progress of a nation. Similarly, a healthy person prevents the spreading of contagious diseases and epidemics by maintaining personal hygiene and sanitation. Thus, human capital creates both private and social benefits.
  • On the other hand, Physical Capital creates only private benefits. It happens because benefits from a capital good flow to those who pay the price for the product and services produced by it.