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Chapter 3

Macroeconomics  /  Sustainable development and inclusive growth

Module 20: Social Capital, Human Capital, Inclusive Growth & Macro Metrics

NITI Aayog and the SDG scoreboards, then the ideas under them: limits, the Kuznets curve, the circular economy, and human capital.

TopicPart 1 of 4

Subtopic 20.1: Social Capital vs. Human Capital Formation

A canal is capital. It is not human capital. Trust is capital of another kind again.

Starting point

Social capital is the mutual trust, networks and harmony that let people cooperate. The IAS item’s answer is the level of mutual trust and harmony in society, not a stock of machines and not a pile of money. Human capital is different. It is the knowledge, skill and health embodied in people. Formation of human capital is a process that raises those capacities. It is an accumulation of intangible wealth, not of tangible wealth, and not “individuals accumulate more capital” in the financial sense. The IAS 2018 key is statements 2 and 4: capacities, and intangible wealth. The wording’s correct choice is the full capacities statement, not the fragments that stop at “more capital” or at knowledge alone.

Skill programmes enhance human capital. Education and health make people more productive, so investment in them yields a future return, and that productivity is why the reason explains the assertion. Irrigation does not have a direct impact on human capital formation. It builds agricultural physical capital. The World Bank’s Human Capital Index 2020, on the item, was topped by Singapore.

  1. Define social capital as trust and harmony, the IAS 2019 key.
  2. Define human capital as knowledge, skill and health, intangible and productive.
  3. Reject tangible wealth and “more financial capital” as the definition.
  4. Skill programmes count. Irrigation does not, directly.
  5. Education and health raise future returns because they raise productivity. Singapore tops the 2020 index in the item.
Worked example. A village with skilled nurses and a habit of keeping agreements has both human and social capital. A new canal raises yields and is capital, but it does not by itself school the nurse or create the trust. That is why irrigation is the option with no direct impact. A training mission that raises skill is human-capital formation even before anyone buys a machine. The return arrives later, as higher productivity, which is the assertion-reason pair.
Memory hook. Trust is social capital. Skills and health are human capital. Irrigation is physical. Singapore led the 2020 Human Capital Index.

Further explanation

Human capital theory, from Schultz and Becker, treats education and health as investment with a return, analogous to physical capital but embodied and not collateralisable in the same way. Social capital, from Putnam and others, is the quality of relations. They interact: trust lowers the cost of using one’s skills in the market. The exam keeps them in separate questions so you do not blend the definitions.

The Human Capital Index combines survival, schooling and health into a productivity measure relative to a benchmark. Singapore’s top place in the 2020 edition is a key, not a claim about GDP size. India’ s interest in the index is the gap the index is built to expose.

Figure

Three stocks, only two of them in this topic’s titles

Social capital

Mutual trust and harmony.

Human capital

Knowledge, skill, health. Intangible. Raised by education and training, not by irrigation. Singapore led the 2020 index.

Concept

Original notes

Subtopic 20.1: Social Capital vs. Human Capital Formation

Sustainable, inclusive development requires differentiating forms of societal and intangible capital:

  • Social Capital: The institutions, relationships, and norms that shape the quality and quantity of a society's social interactions. It is evaluated as the level of mutual trust and harmony in society (not physical buildings or literacy percentages).
  • Human Capital Formation: The process of acquiring and increasing the knowledge, skills, capacities, and health of a country's population. It represents intangible wealth, directly driving labor productivity and higher lifetime earnings.
  • Key Drivers: Education, healthcare, and skill development programs (e.g., PMKVY). Physical inputs like irrigation build agricultural physical capital, not human capital.
  • World Bank Human Capital Index (HCI 2020): Singapore secured 1st rank globally with a score of 0.88, while India stood at the 116th rank.

Important points

  • Social capital represents the level of mutual trust and social cohesion.
  • Human capital is intangible wealth built through education, health, and skill training.
  • Irrigation does not have a direct impact on human capital formation.
  • Singapore topped the World Bank's Human Capital Index 2020.
Topic
Questions

MCQs

Choose one option, then the next question.

Original question

Question 41: In the context of any country, which one of the following would be considered as part of its social capital? [I.A.S. (Pre) 2019]

Social capital refers to networks, shared norms, and the level of mutual trust and harmony that facilitate collective cooperation.

Original question

Question 42: 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? [I.A.S. (Pre) 2018]

Human capital refers to intangible wealth (knowledge, skills, and capacities). Statements 1 and 3 refer to physical capital formation.

Original question

Question 43: 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 | 3. increasing the skill levels | 4. increasing the knowledge, skill levels and capacities of the people of the country. Select the correct answer: [69th B.P.S.C. (Pre) 2023]

Statement 4 provides the complete and comprehensive definition of human capital formation.

Original question

Question 44: Skill development programme enhances: [U.P.P.C.S. (Mains) 2017]

Skill development programmes directly upgrade the capabilities, employability, and productivity of individuals, thereby building human capital.

Original question

Question 45: Which one of the following will not have a direct impact on human capital formation? [U.P. R.O./A.R.O. (Mains) 2017]

Education, healthcare, and training develop human capabilities directly. Irrigation builds agricultural physical infrastructure.

Original question

Question 46: Increasing investment in human capital leads to: [U.P.P.C.S. (Pre) (Re-Exam) 2015]

Investing in human capital fosters skill acquisition, enables optimal utilization of physical capital and resources, and elevates economic productivity.

Original question

Question 47: Given below are two statements:
Assertion (A): Investment in human capital yields returns in the future.
Reason (R): Education and health make people more productive.
Select the correct answer: [U.P. P.C.S. (Pre) 2025]

Investment in human capital (education and healthcare) raises individual labor productivity, which generates higher income and economic returns in the future. (R) correctly explains (A).

Original question

Question 48: Which of the following countries has topped in the Human Capital Index, 2020? [66th B.P.S.C. (Pre) 2020]

In the World Bank's Human Capital Index 2020 update, Singapore ranked first among 174 economies with a score of 0.88.

Added question

Which does not directly form human capital?

Irrigation is physical agricultural capital. Education, skills and health form human capital.

Question 1 of 9
TopicPart 1 of 4

Subtopic 20.2: Pillars of Inclusive Growth & Governance

Growth can be fast and still leave people outside it. Inclusion is the question of who is inside.

Starting point

Inclusive growth means the rise in income is broad: poor regions, small firms, women, and people who depend on public schools and clinics share it. The items list what it necessitates: rural development, infrastructure, and public education and health, the “all of the above” when those are the options. Promoting self-help groups, promoting micro, small and medium enterprises, and implementing the right to education all aid the objective. Inclusive governance, in the IAS list, includes effective district planning committees, more public-health spending, and a stronger mid-day meal scheme. Permitting non-bank finance companies to do banking is not in the keyed set.

What inclusive growth is not expected to follow from, by itself, is a high growth rate of national income. The aggregate can rise while the distribution leaves people out. That negative item is as important as the positive list. The Economic Survey first included a chapter on sustainable development and climate change in 2011-12.

  1. Define inclusive growth as broad participation, not only a higher average.
  2. Include rural development, MSMEs, self-help groups, public health, education and the mid-day meal.
  3. Include district planning committees as governance.
  4. Exclude a high national-income growth rate as a sufficient source.
  5. Exclude NBFC banking permission from the governance list. Date the Survey chapter to 2011-12.
Worked example. An economy can grow at 7 percent while a rainfed district loses young workers and its school has no teacher. The national rate is high. The inclusion is not. A self-help group that gives a borrower a livelihood, a small firm that hires locally, and a mid-day meal that keeps a child in school are the kinds of instruments the items mark. A regulatory permission for a finance company to become a bank is a financial-sector reform, and it is the statement left out of inclusive governance.
Memory hook. High GDP growth alone is not inclusive. SHGs, MSMEs, RTE, health, mid-day meals and district plans are. Survey chapter: 2011-12.

Further explanation

Inclusion can be defined by opportunity, by outcome, or by process. The papers mix them: legal rights such as the right to education, services such as the mid-day meal, and local planning institutions. A answer should say inclusion is about the distribution of the increment and about access to the public goods that create human capital. The previous topic’s human-capital point is how education spending serves inclusion.

The 2011-12 Survey chapter matters as a marker that sustainability entered the flagship annual economic document, not as a claim that policy started that year.

Figure

What the items include, and what they refuse

Aids inclusion

Self-help groups, MSMEs, the right to education, public health, mid-day meals, district planning, rural development.

Does not, by itself

A high growth rate of national income. NBFC bank licences are outside the governance key.

Current figure

7.1%

RBI real GDP projection

Unit
percent
Period
FY 2026-27 full year; Q2 7.2%, Q3 6.9%, Q4 6.8%; Q1 2027-28 also 7.1%
Accessed
16 October 2026

Projection revised up by 40 basis points at that meeting. Risks described as evenly balanced.

Concept

Original notes

Subtopic 20.2: Pillars of Inclusive Growth & Governance

Inclusive Growth: Economic growth that is distributed fairly across society and creates opportunities for all sections, particularly marginalized groups.

  • Key Drivers: Rural development, agricultural revival, MSME development, microfinance (Self-Help Groups), and implementing the Right to Education (RTE) Act.
  • Fallacy of Pure GDP Growth: A high growth rate of National Income does not guarantee inclusive development if wealth remains concentrated.
  • Inclusive Governance: Broadening public health expenditure, strengthening the Mid-Day Meal Scheme (PM POSHAN), and activating constitutional District Planning Committees. Allowing NBFCs to perform commercial banking is a financial regulation, not inclusive governance.
  • Economic Survey Milestone: A dedicated chapter on \"Sustainable Development and Climate Change\" was first introduced in the Economic Survey of 2011-12.

Important points

  • Inclusive growth requires rural development, infrastructure, MSMEs, and public education/health.
  • A high growth rate of national income alone does not imply inclusive growth.
  • The Economic Survey first included a chapter on Sustainable Development and Climate Change in 2011-12.
Topic
Questions

MCQs

Choose one option, then the next question.

Original question

Question 49: Inclusive growth would necessitate: [U.P.P.C.S. (Mains) 2008]

Inclusive growth requires multi-sectoral interventions including infrastructure, agrarian regeneration, and accessible education/health.

Original question

Question 50: Inclusive growth is not expected to increase from which one of the following? [U.P. U.D.A./L.D.A. (Pre) 2013]

A high growth rate of national income alone can occur alongside widening income inequalities; it does not automatically produce inclusive growth.

Original question

Question 51: Which of the following can be said to be essentially the parts of Inclusive Governance?
1. Permitting Non-Banking Financial Companies to do banking.
2. Establishing effective District Planning Committees in all districts.
3. Increasing government spending on public health.
4. Strengthening the Mid-day Meal Scheme.
Select the correct answer: [I.A.S. (Pre) 2012]

District Planning Committees, public healthcare investment, and child nutrition schemes directly foster inclusive governance. Regulating NBFC banking operations does not.

Original question

Question 52: Which of the following can aid in furthering the Government's objective of inclusive growth?
1. Promoting Self-Help Groups.
2. Promoting Micro, Small and Medium Enterprises.
3. Implementing the Right to Education Act.
Select the correct answer: [I.A.S. (Pre) 2011]

SHGs empower marginalized groups, MSMEs create widespread employment, and the RTE Act ensures universal education. All three promote inclusive growth.

Original question

Question 53: A new chapter on sustainable development and climate change was first introduced in the Economic Survey of: [U.P.P.C.S. (Pre) (Re-Exam) 2015]

For the first time, a dedicated chapter on sustainable development and climate change was introduced in the Economic Survey of 2011-12.

Added question

Inclusive growth is not expected to follow, by itself, from:

The aggregate growth rate can rise without broad participation. The other options are instruments of inclusion.

Question 1 of 6
TopicPart 1 of 4

Subtopic 20.3: Domestic Savings Composition

The saving order does not change because the chapter title changed.

Starting point

Physical assets again hold the highest share of household saving. The descending order of domestic saving is household, private corporate, public corporations and other public enterprises, then government. If you learned that order in the national-income chapter, you are meant to recognise it here.

  1. Name physical assets as the top household-saving form.
  2. Repeat the order: households, private corporate, public enterprises, government.
Worked example. A family that builds a room has done physical saving. A family that leaves the money in a deposit has done financial saving. In the household total, the room is the larger share.
Memory hook. Physical assets. Households, then private corporate, then public enterprises, then government.

Further explanation

Rural capital formation is partly household construction and land improvement, which the accounts call physical saving. That is a saving identity, not a farm-price rule.

Figure

Two saving facts

  1. Household savingPhysical assets hold the highest share.
  2. OrderHousehold, private corporate, public enterprises, government.
The same composition as in the national-income chapter.
Current figure

₹111.13 lakh crore

Gross saving

Unit
rupees, current prices
Period
FY 2024-25
Accessed
16 October 2026

Up from ₹95.17 lakh crore in 2023-24. Households 62.1% of gross saving; non-financial corporations 28.9%.

Concept

Original notes

Subtopic 20.3: Domestic Savings Composition

Household saving is the largest piece of domestic saving, and most of that household saving is held as physical assets.

  • Household Savings Breakdown: In India, household savings in physical assets (real estate, housing, gold) consistently surpass financial savings (bank deposits, currency, equities).
  • Sectoral Hierarchy in Gross Savings: Domestic savings follow a strict descending order: 1. Household Sector > 2. Private Corporate Sector > 3. Public Corporations/Enterprises > 4. Government.

Important points

  • Physical assets hold the highest share in household savings in India.
  • Savings descending order: Household > Private corporate > Public corporations > Government.
Topic
Questions

MCQs

Choose one option, then the next question.

Original question

Question 103: Which has the highest share in the household savings of India? [U.P.P.C.S. (Mains) 2009]

According to RBI Handbook of Statistics, household savings in physical assets (real estate, gold, property) outscore savings in financial assets like deposits, currency, or equities.

Original question

Question 104: In India savings arise from the following four main sectors: 1. Household sector | 2. Private corporate sector | 3. Public corporations and other public enterprises | 4. Government. Find the correct descending order: [U.P. Lower Sub. (Spl.) (Pre) 1998]

The correct descending order of contribution in gross domestic savings is: Household sector (1) > Private corporate sector (2) > Public enterprises (3) > Government (4).

Question 1 of 2
TopicPart 1 of 3

Human capital formation (NCERT Class 11)

Education, health, training, migration, and information. Those sources build human capital.

Starting point

NCERT Class 11 defines human capital as the stock of skill, knowledge and health embodied in people, which lets them produce more. Human capital formation is the addition to that stock. The sources the chapter names are education, health, on-the-job training, migration, and information about jobs and education.

Human capital is not the same phrase as human development. Capital asks what the person can produce. Development, in the wider sense used beside it, asks what the person can be and do. Education serves both: it raises earning power, and it is valued for itself.

  1. List the five sources before you discuss the education sector.
  2. Separate human capital from physical capital. A skill travels with the person. A machine does not.
  3. If the question says human development, do not answer with a factory.
Worked example. A nurse who trains for two more years raises her own future output and the output of the clinic. The cost of the course is investment in human capital. The same spending is not the purchase of a machine, even though both are investment.
Memory hook. Education, health, training, migration, and information. Those sources build human capital.

Further explanation

Migration enters the list because a person may become more productive by moving to a job that uses the skill. It is not automatically a loss to the country of origin. The chapter treats it as a source, and also notes the cost.

Important points

  • Human capital is skill, knowledge and health embodied in people.
  • Education and health are the main sources of human capital.
  • On-the-job training, migration and information are also sources.
  • Human capital and human development are related and not identical.
Topic
Questions

MCQs

Choose one option, then the next question.

Added question

Which is a source of human capital in NCERT Class 11?

Training adds to the skill stock. The other options are national-accounts terms.

Question 1 of 1
TopicPart 1 of 3

People as a resource (NCERT Class 9)

Educated, healthy people are a resource. Market work is paid. Non-market work is still production. Unemployment leaves the resource idle.

Starting point

NCERT Class 9, People as Resource, asks for people to be seen as an asset when they are educated and healthy, and as a liability when they are unskilled and unwell. Investment in human capital, through education and health, is how a person becomes the first of those.

The chapter divides economic activities into the primary, secondary and tertiary sectors, and it divides work into market activities done for pay and non-market activities done for self-consumption. Unpaid work inside the home, much of it by women, is real production and is easy to miss in a wage statistic. Unemployment is the waste of the resource: the person is able to work and cannot find enough of it.

  1. Call people a resource only after you name the investment: education or health.
  2. Separate market work from non-market work.
  3. Treat unemployment as unused human resource, not as a personal failing.
Worked example. A woman who teaches in a school is in market activity and in the tertiary sector. The same woman cooking for her family is in non-market activity. Both are work. Only the first is likely to appear in a wage survey. Class 9 wants both recognised.
Memory hook. Educated, healthy people are a resource. Market work is paid. Non-market work is still production. Unemployment leaves the resource idle.

Further explanation

This is the school version of the Class 11 human-capital chapter. The sources there are the detailed list. The idea here is the shift from seeing people as a burden to seeing them as a resource.

Important points

  • People become a resource through education and health.
  • Market activities are performed for pay. Non-market activities are for self-consumption.
  • Work falls in the primary, secondary or tertiary sector.
  • Unemployment is unused human resource.
Topic
Questions

MCQs

Choose one option, then the next question.

Added question

NCERT Class 9 classifies cooking meals for the family, without pay, as:

Work done for self-consumption, without pay, is non-market activity.

Question 1 of 1
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