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Q49 (IAS/2018) Economy › Growth, Development, Poverty & Employment › Human capital formation Official Key

Consider the following statements : Human capital formation as a concept is better explained in terms of a process which enables 1. individuals of a country to accumulate more capital. 2. increasing the knowledge, skill levels and capacities of the people of the country. 3. accumulation of tangible wealth. 4. accumulation of intangible wealth. Which of the statements given above is/are correct ?

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is option C (statements 2 and 4 only).

Human capital refers to increasing the knowledge, skill levels and capacities of the people of the country[1], making statement 2 correct. Additionally, it is termed as an intangible asset that plays a great role in the economic growth and development of a nation[1], which validates statement 4 about accumulation of intangible wealth.

Statement 1 is incorrect because human capital formation is not about individuals accumulating more financial or physical capital, but rather about the stock of skill and productive knowledge embodied in them[2]. Statement 3 is also incorrect because human capital considers education and health as a means to increase labour productivity and treats human beings as a means to an end; the end being the increase in productivity[3], not the accumulation of tangible wealth like machinery or buildings.

Human capital formation is fundamentally about enhancing human capabilities through investments in education, health, on-the-job training etc.[3], creating intangible assets in the form of skilled and knowledgeable people.

Sources
  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 19: Population and Demographic Dividend > TACKLING SKILL DEFICIT THROUGH HUMAN CAPITAL > p. 574
  2. [2] Economics, Class IX . NCERT(Revised ed 2025) > Chapter 2: People as Resource > Overview > p. 16
  3. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > Human Capital: > p. 28
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Consider the following statements : Human capital formation as a concept is better explained in terms of a process which enables 1. ind…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 5/10
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This is a 'Definitional Purism' question. It doesn't ask for data or schemes, but for the precise economic character of a concept found in Class IX NCERT. The strategy is simple: When reading basic terms (Capital, Liberty, Rights), distinguish clearly between their physical/tangible forms and their abstract/intangible forms.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Does the concept of human capital formation refer to individuals of a country accumulating more capital?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Investments in education convert human beings into human capital; human capital represents enhanced labour productivity, which is an acquired ability and an outcome of deliberate investment decisions with an expectation that it will increase future income sources."
Why this source?
  • Explicitly states that investments in education convert people into human capital, tying formation to deliberate investments in individuals.
  • Defines human capital as an acquired ability and outcome of investment decisions, which matches the idea of individuals accumulating capital (skills/abilities).
Web source
Presence: 5/5
"Investment in education is considered as one of the main sources of human capital. ... Investments in health, on- the-job training, migration and information are the other sources of human capital formation."
Why this source?
  • Identifies investment in education as a main source of human capital formation, linking the concept to accumulation through spending on people.
  • Lists other personal investments (health, on-the-job training, migration, information) as sources, reinforcing that individuals acquire capital via investment.
Web source
Presence: 5/5
"Investments in education, on-the-job training, health, migration and information are the sources of human capital formation. Ø The concept of physical capital is the base for conceptualising human capital."
Why this source?
  • Summarises the sources of human capital formation (education, training, health, migration, information), indicating accumulation of productive capacities in people.
  • Notes conceptual link to physical capital, implying human capital formation is analogous to accumulating capital, but in people.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 19: Population and Demographic Dividend > EXAMPLE Previous Years' Preliminary Examination Questions EXAMPLE PREVIOUS > p. 577
Strength: 4/5
“• 2020, 2019: o question • 1. Human capital formation as a concept is better explained in terms of a process which enables: • 1. Individuals of a country to accumulate more capital. • 2. Increasing the knowledge, skill levels and capacities of the people of the country. 2017 3. Accumulation of tangible wealth. a a 4. Accumulation of intangible wealth. Which of the statements given above is/are correct? • (a) 1 and 2 • (b) 2 only • (d) 1, 3 and 4 • (c) 2 and 4 • 2. Consider the following in respect of 'National Career Service' • 1.”
Why relevant

Contains a multiple‑choice framing that contrasts 'individuals ... accumulating more capital' with 'increasing knowledge, skill levels and capacities' — showing the common alternative interpretations of human capital formation.

How to extend

A student could note this contrast and check textbook definitions or examples to see which of the two alternatives (physical accumulation vs skills/knowledge) matches standard usage.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > Human Capital: > p. 28
Strength: 5/5
“Just as 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. Societies need sufficient human capital in the first place - 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. Sources of human capital formation is investments in education, health, on-the-job training etc. Human capital considers education and health as a means to increase labour productivity. Human capital treats human beings as a means to an end; the end being the increase in productivity”
Why relevant

Explicitly defines human capital formation as turning human resources (students) into human capital (engineers, doctors) via investments in education, health and training.

How to extend

Extend by comparing the listed activities (education, health, training) with what counts as 'accumulating capital' (physical assets) to judge whether the phrase means physical capital or skills/capacity.

Economics, Class IX . NCERT(Revised ed 2025) > Chapter 2: People as Resource > Overview > p. 16
Strength: 5/5
“Like other resources population also is a resource — a 'human resource'. This is the positive side of a large population that is often overlooked when we look only at the negative side, considering only the problems of providing the population with food, education and access to health facilities. When the existing 'human resource' is further developed by becoming more educated and healthy, we call it 'human capital formation' that adds to the productive power of the country just like 'physical capital formation'. Investment in human capital (through education, training, medical care) yields a return just like investment in physical capital.”
Why relevant

States that human capital formation is developing people to be more educated and healthy and equates this to adding to the productive power of the country (analogous to physical capital formation).

How to extend

Use the analogy to physical capital formation: if human capital formation is described by investments in education/health (not buying machines), that suggests it means skills/health rather than individuals accumulating physical capital.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 19: Population and Demographic Dividend > TACKLING SKILL DEFICIT THROUGH HUMAN CAPITAL > p. 574
Strength: 5/5
“Human capital refers to increasing the knowledge, skill levels and capacities of the people of the country. It is termed as an intangible asset that plays a great role in the economic growth and development of a nation. Hence, there is a need to transform the working age population into human capital in order to reap the benefits of demographic dividend in India. General education improves knowledge of the people while skill training enhances their employability and equips them to tackle the requirements of labour market. Persisting skill deficit among the working age is one of the important factors for dropping rates of employability.”
Why relevant

Defines human capital as increasing knowledge, skill levels and capacities and labels it an intangible asset crucial for growth.

How to extend

A student can contrast 'intangible asset (skills/knowledge)' with 'accumulation of capital' understood as tangible wealth to evaluate whether the statement matches the definition.

Economics, Class IX . NCERT(Revised ed 2025) > Chapter 2: People as Resource > Let's Discuss > p. 17
Strength: 4/5
“• Looking at the photograph can you explain how a doctor, teacher, engineer and a tailor are an asset to the economy? Not only do the more educated and the healthier people gain through higher incomes, society also gains in other indirect ways because the advantages of a more educated or a healthier population spreads to those also who themselves were not directly educated or given health care. In fact, human capital is in one way superior to other resources like land and physical capital: human resource can make use of land and capital. Land and capital cannot become useful on its own!”
Why relevant

Explains how educated/healthy people benefit society and emphasises that human resource can make use of land and capital — implying human capital is about capabilities rather than ownership of physical capital.

How to extend

Combine this with basic understanding of 'capital' (physical vs human) to infer that human capital formation focuses on capabilities (skills, health) not on individuals acquiring more physical capital.

Statement analysis

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Statement analysis

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Statement analysis

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