The Budget overlooks the fact that human capabilities are as important as physical capital for economic growth and the quality of life. It goes back to the days when growth and development sounded synonymous, physical capital was thought to be the key, and human capital took a back seat
FROM THE HINDU MARCH 5 2015
Among early voices of dissent was none other than economist and future Nobel Laureate Milton Friedman, who came to India in 1955 and submitted an enlightening “memorandum to the Government of India” where he warned against “policies that increase physical investment at the expense of investment in human capital”. Some Indian economists were on the same wavelength, notably B.V. Krishnamurthi, who wrote a sharp note of dissent on education policy in the same year, where he castigated the government for applying “the calculus of the private grocery merchant to a matter like education”. Another dissident, from a very different point of view, was Dr. Ambedkar, who saw mass education as essential for the liberation of the oppressed. The critics, however, were sidelined and India is still paying a heavy price for it today.
Later on, further advances in development economics vindicated these critical thinkers. Needless to say, physical capital is important for growth. But so are human capital, economic institutions, and also other things — for instance social norms — that we do not understand very well. Further, growth is not the same as development, in the broad sense of an improvement in the quality of life and expansion of human freedoms. Growth can be an important tool of development, but the extent to which growth…continue reading