Opinion

Human capital: Need for State-level approach

Anirudh Tagat/Abhijit Chakraborty | Updated on September 28, 2021

There is need for micro-level studies that can create evidence based policy interventions to improve human development

At the height of the Covid-19 pandemic, the World Bank released the 2020 report of the Human Capital Index (HCI). The HCI is an attempt to measure investments and improvements required in health, schooling, and nutrition around the world.

The report itself focuses on the fallout of the pandemic on key human capital indicators such as mortality, years of schooling, and nutritional outcomes. Development scholars and experts around the world have emphasised that one of the critical ways out of poverty is through freedom from illness and receiving education.

Human Capital is the productive capacity generated by an individual due to better education and health. Better productive capacity results in higher earning potential for individuals and also higher earnings for the nation. The HCI therefore measures the average shortfall in human capital for an individual worker in a country if they were exposed to full (i.e., optimal) education and health.

A disaggregated view

Although the cross country data is of great significance, recent studies indicate the importance of micro-level or disaggregated data as opposed to the national averages for better targeting in policymaking. In this article, we present first-of-its-kind HCI estimates for the major States of India.

 

The objective of this study was to compute an index based on the lines of the Human Development Index to broaden our understanding of the performance of the major States. The other reason was to capture the vast diversity that exists within India in terms of health, schooling, and mortality indicators.

We measure HCI for the States based on the methodology followed by the World Bank. The HCI has three subcomponents: (a) Survival (a probability estimate that a child will survive up to age 5); (b) Schooling (derived from the expected years of schooling and a harmonised test score from India’s National Achievement Survey, or NAS by the NCERT); and (c) Health (a composite of the fraction of children under five that are not stunted and the fraction of 15-year olds expected to survive till age 60). The composite HCI is a product of these three components.

We computed HCI scores for 20 States using data roughly in the time period 2014-16, with data for key indicators in health and survival coming from the fourth round of the National Family Health Survey (NFHS, 2015-16), and adult survival rates derived for 2014 from a study by Prof. Usha Ram and colleagues published in the Lancet. State-level data on test scores from the NAS is for 2017 and expected years of schooling data is from 2016 from a study by researchers at the International Institute for Population Sciences (IIPS).

The figure below shows the ranking of States on the HCI as of 2016.

The green line in the figure shows the all India average, which is 0.322, lower than the most recent World Bank estimate of 0.49.

This means that the productivity as a future worker for a child born in India is nearly 67.8 per cent below what could be achieved if there were complete education and full health. The reason for the discrepancy between our estimate and the national-level estimate could be on account of ours being for a subsample (20) of States/union territories . It could also be attributed to variations in data sources used between our study and the World Bank’s HCI.

The results indicate that even wealthy States such as Maharashtra are below the national HCI score. There is a wide variation among the States as can be observed, which calls for a disaggregated policy approach as opposed to single intervention at the central front.

 

 

There is a positive correlation between HCI and per capita income, which signifies that higher per capita income is associated with higher HCI value. This could be probably linked to the fact that States with higher per capita income invested more in education and health or the other way round.

We also compared the HCI with the inequality-adjusted human development index (IHDI) to see how the States fared when compared on both, it is found that the representative measure of human capital correlates positively with the IHDI.

Policy implications

The human capital index is a measure of the aggregate or average shortfall for a particular State in terms of human capital if it is subjected to full capacity in education and health. This has wide-ranging policy implications for a country like India. Although education and health are both in the concurrent list, most often the States rely on Central schemes for the development of the two sectors.

Given that there is an opportunity to tailor State-specific policies from these indicators, the HCI provides a valuable evidence base for which indicators to target using policy. Various interventions or welfare measures that focus on nutrition such as mid-day meals have been recently established to have significant positive impacts on child health outcomes.

The computation presented here can be used for future work that looks at the State-level analysis of health, education, or other aspects of human capital and development in the Indian context. It is only with specific, disaggregated data that we can move toward evidence-based policy that directly allows States to intervene in critical domains of human capital in India.

Tagat is Research Author at the Department of Economics, Monk Prayogshala, and Chakraborty is a PhD Scholar at the Department of Economics at University of North Bengal

Published on September 28, 2021

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