Human Capital Index

Context:India has been ranked at 115 out of 157 countries on Human Capital Index (HCI) released by World Bank as part of World Development Report (WDR) 2019.Broader theme of the World Development Report (WDR) is “The Changing Nature of Work”.

What is human capital?

Human capital consists of the knowledge, skills, and health that people accumulate throughout their lives, enabling them to realize their potential as productive members of society.

Significance of human capital:

1. Human capital is central to sustainable growth and poverty reduction.
2. Development of human capital enables people to be more productive, flexible, and innovative.
3. With rapid technological development, development of human capital has become prerequisite to cater to the changing needs of work. With rapid globalisation and industrialization, markets demand workforce with higher levels of human capital, especially advanced cognitive and socio-behavioural skills.

What is Human Capital Index?

• The Human Capital Index, released by the World Bank, captures the amount of human capital a child born today could expect to attain by age 18.
• It measures the productivity of the next generation of workers compared to a benchmark of complete education and full health.
• Objective:The objective of the index is to show how low education and health outcomes impact productivity, growth and prosperity.

Components and Indicators of Human Capital Index:

The Human Capital Index has three components:

1. Survival: It reflects the fact that children born today need to survive until the process of human capital accumulation through formal education can begin.

Indicator:probability of survival to age five (under 5 mortality rate)

2. Expected years of learning-adjusted school: It reflects the reality that children insome countries learn far less than those in other countries, despite being in school for a similar amount of time.

Indicators:

1. a child’s expected years of schooling
2. harmonized test scores as a measure of quality of learning,
3. Health

Indicators:

1. adult survival rate (fraction of 15-year olds that will survive to age 60): It reflects the range of health outcomes that a child born today may experience as an adult
2. the proportion of children who are not stunted: It reflects the health environment experienced during prenatal, infant, and early childhood development. 

State of Human Capital Globally:

• Singapore topped the list with a score of 0.88, followed by South Korea, Japan and Hong Kong. US came 24^th and China ranks 46^th.
• African countries performed the worst in the rankings, with Chad (0.29) and South Sudan taking the two lowest spots.
• 56% of the world’s children live in 60 countries such as Ethiopia, India, Nigeria, and Pakistan, with HCI scores below 0.5

State of Human Capital in India:

1. Rank:India has been ranked 115 out of 157 countries in the index
2. Human Capital Index: A child born in India at present will be 44% as productive when he/she grows up as he/ she could be if he/she enjoyed complete education and full health.The HCI for India is lower than what would be predicted for its income level.
3. Probability of Survival to Age 5: 96 out of 100 children born in India survive to age 5.
4. Expected Years of School: In India, a child who starts school at age 4 can expect to complete 10.2 years of school by his/her 18th birthday.
5. Harmonized Test Scores: Students in India score 355 on a scale where 625 represents advanced attainment and 300 represents minimum attainment.
6. Learning-adjusted Years of School: Factoring in what children actually learn, expected years of school is only 5.8 years.
7. Adult Survival Rate: 83% of 15-year olds will survive until age 60. This statistic is a proxy for the range of fatal and non-fatal health outcomes that a child born at present would experience as an adult under current conditions.
8. Healthy Growth (Not Stunted Rate: 62 out of 100 children are not stunted. 38 out of 100 children are stunted, and so at risk of cognitive and physical limitations that can last a lifetime.
9. Gender Differences: HCI for girls is marginally higher than for boys.

Cross-country Comparisons:

India’s neighbours Bangladesh, Nepal and Sri Lanka were better placed at 106th, 102nd and 74th position, respectively.

Why does India perform poorly in HCI?

India’s poor performance in Human Capital Index is a reflection of inadequate investment and a lack of inclusive approach in health and education.

1.Health:

• Healthcare provisions in India is grossly inadequate and access to healthcare is highly inequitable. Lack of efficient public healthcare and burden of out of pocket health expenditures reduces people’s capacity or disables them from investing in the human capital of their children.
• ineffective functioning (corruption and leakages) of the public distribution system (PDS), growing economic inequalities and lack of nutritional awareness pose challenges in combating malnutrition

2.Education:

• Basic literacy (the ability to read and write) in the overall population has progressed modestly. However, there is persistent gender differentials, and major differentials by caste and religion.
• The state of functional literacy and professional skills is poor. Indian graduates have low employability and does not meet changing economic structure or support global competitiveness.

4. Inequality: There is growing inequality across social groups and income groups which translates itself into poor socio-economic mobility. Lack of socioeconomic mobility hinders human capital development and traps a large section of population to be in the vicious circle of poverty.
5. Inadequate use of knowledge bases from technology developments:There is a disconnect between India’s rate of technological growth and ability to distribute the gains from it by adequately focusing on skilling and health. The use of technical advancements has been concentrated in few sectors and benefits accrued by a few elitist sections of the society.

India’sview on Human Capital Index

India rejected World Bank’s HCI report over data gaps and methodological weaknesses. The key criticisms put forward are:

1. HCI does not take into account GDP per capita. Inclusion of GDP per capita would have arguably brought India higher up in the ranking.
2. Indian government has argued that data used for assessing the quality of education is questionable.

• There is no consistency in the data and the methodology for assessment is complex.
• Data used for assessing quality and quantity comes from varied sources like quantity has been assessed using enrolment rates reported by UNESCO and quality from 2009 data of PISA for only 2 states (Himachal Pradesh and Tamil Nadu)

3. The index does not take into account recent initiatives like Samagra Shiksha Abhiyan or the Swachh Bharat Mission and even Aadhaar, when calculating the index. The government claims that these measures have been transforming human capital scenario in India at a rapid pace.
4. The differences in development outcomes arising from governance issues, political systems, socio-cultural context, and legacy issues have been totally ignored.

Steps to be taken:

1. India’s huge demographic dividend remains unutilised due to variety of factors. HCI scores on sub-components will help India direct its human capital developmental efforts at the factors lagging behind the most.
2. The areas of health and education needs urgent policy attention with increased investment and more inclusive approach.India should take a more comprehensive view of development that incorporates all elements of human capital.
3. A robust state capacity and bureaucracy is required to implement state-sponsored programmes
4. Real-time data and increased frequency of credible measurement of investments made in education, health and areas of technological adoption is required to assess the progress in human capital development.