Article: The state of human capital in India

Strategic HR

The state of human capital in India

India is poised to have one of the largest human talent pools that can effectively contribute to a sustained economic growth. But how well has it fared in developing its human capital?
The state of human capital in India

The World Economic Forum recently came out with its Global Human Capital Report. Although generic sounding, the report paints an in-depth picture of the current talent landscape in the world.  The report presented a comprehensive ranking of the 130 nations on the basis of an Index that measured the preparedness of the nation's talent to contribute to economic growth and productivity. A list in which India finds itself in the 103rd position as Norway takes pole position.

The index measured the country’s investment in developing talent across the lifecycle—through vital parameters like education and employment— that form a key part of what enhances a country’s human capital. Even with similar levels of robust educational investment, the study looked into how well secondary factors like on-the-job learning are being tapped into as they are often critical in ensuring that the initial investments in education are able to sustain as well as ensuring that people’s skills grow and appreciate in value over time. 

The growing importance of Human Capital

Human capital is a key factor for growth, development, and competitiveness. More so in recent times, within the modern context of development, human capital forms the base of economic growth. This link works through multiple pathways at the individual, firm and national level. Learning and skill building provide people with livelihoods, an opportunity to contribute to their societies. They also contribute vitally to the formation of one’s meaning and identity in life. Technological and corporate innovation can only be fostered, in a decentralized manner, by a skilled talent pool. This puts an onus on many developing countries that, at the various levels, equality of opportunity in education and employment is necessary. Necessary as a skilled and educated population doesn’t just contribute to economic development but also towards positive social and political outcomes. That is why developing human capital is often vital to develop countries with increasing working population. 

But before we delve further, it becomes important to define the human capital.

The report defines “human capital” as the knowledge and skills people possess that enable them to create value in the global economic system. The report brings in both quantitative and qualitative measures around education, empowerment, and employment to create a holistic picture. 

The subsequent index that it presents is based on the following parameters:

  • First, the Index exhibits the greatest variety across its Capacity sub-index, measuring the human capital built through past education investments.
  • Second, compared to the Capacity sub-index, the Human Capital Index finds a somewhat narrower range of outcomes across its Deployment sub-index, which measures the extent to which countries are developing human capital through deployment in the labour market.
  • Third, the Index’s Development sub-index measures countries’ current success in building the human capital of their next-generation workforce as well as in continual upgrading the human capital of those people already in the workforce through lifelong learning.
  • The final sub-index, Know-how, captures the current quality and skill-intensity of employment in a country and the extent to which its workplace environment is likely to create additional learning opportunities.

India’s performance vis-a-vis other global counterparts

According to the report, India currently sits in a geographical area marked by the second highest gap in human capital development; just behind the region of Sub Saharan Africa. India is 103rd on the list and ranks at the top of the bottom quartile of the Index. This means it finds itself below Sri Lanka and Nepal within the South Asia region. 

Within economies of comparable sizes, India finds itself faltering at fostering human capital development. It lags behind significantly when it comes to a comparison with BRIC nations where countries like China and Brazil fare much better. A similar trend is expressed when one looks at G20 group of countries. 

The report adds that although the “country’s current educational attainment rate has improved markedly over past generations; its youth literacy rate is still only 89% which falls well behind the rates of other leading emerging markets.” This rate is also below when compared to the lower-middle income group’s average. India on further analysis also ranked poorly on labour force participation, due in part to, what the report notes is “one of the world’s largest employment gender gaps”. 

But signs of improvement are surely present as the country has received solid rankings on education quality, staff training, and economic complexity. “This suggests” the report explains, “that the primary avenue for realizing a greater share of the nation’s human capital potential consists in creating a virtuous cycle by increasing inclusivity and expanding access to its numerous learning and employment opportunities. A simple yet unbearably complicated task in a diverse country like India. 

India was at 105th position on the list last year, while the top spot was taken by Finland, pushed to second place this year.  Given the size and scope of Indian labour markets, it’s often difficult to catalyze the development of human capital uniformly across the nation. The labour markets still face major challenges ranging from an unskilled workforce to competency and job mismatch.  

With the onset of the fourth industrial revolution, as per the Future of Jobs report by the World Economic Forum, disruptive changes to business models are bound to have a profound impact on the employment landscape over the coming years. The advancements in the field of nanotechnology, 3D printing, and artificial intelligence have already started providing smarter cities, factories, and processing units. These combined with the larger socio-economic and demographic changes across time will create the need to re-evaluate necessary skill set, which would push the existing gap further.  Technological disruptions like machine learning and robotics will lead to the automation of many jobs across industries. As these disruptions free up workers for newer tasks and their employment would demand an update of their skill sets. This cohort of people looking for employment would add to existing pool of talent looking for suitable jobs. Even the jobs which are relatively stable may require a regular upgrade of skill sets as they now operate in constantly evolving ecosystems. To have a concerted effort towards building human capital and ensuring they have a proper access to quality jobs would become critical for India to maintain a high rate economic growth in the long run.

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Topics: Strategic HR

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