The importance of education for the development of human resources was recognised long ago. Adam Smith published his 'Wealth and Nation' nearly 200 years ago, considered education and specialised training in various crafts useful for the society. Expenditure on these items creates a sort of fixed capital which raises production ability of both individuals and the society. The education system performs the following functions :

1. It results in greater awareness of available opportunities and mobilities of labour.

2. It produces the skilled and trained personnel needed by the economy and society.

3. It promotes science and technology, scientific outlook and increased participation of citizens in the affairs of the country.

4. It builds human capacity for appreciation of art and literature.

5. It generates national and development consciousness.

6. It is needed for cultural needs and develops personality.

Major problems of eduational development in India:

1. Wastage of Resources : There is a good amount of wastage of resources in our educational system. The dropout rate is very high. It leads to wastage of financial and human resources.

2. Illiteracy : Illiteracy among scheduled tribes and scheduled casts and backward classes continue to be high.

3. Disparities in Standard : Wide disparities in educational system exist among different states and educational institutions.

4. Lack of Funds : Most of the educational institutions in India lack funds. They fail to equip themselves with adequate buildings, library, laboratories and sports facilities.

5. Problem of Brain Drain : Intelligent and telented persons are not getting good jobs in the country so they migrate to other countries for better salary and facilities.

Need for Government intervention in education and health sectors : In India, both private and public institutions exist in education and health service markets. Expenditure on education and health make substantial long term impact and they cannot be easily reversed. Hence government intervention is essential.

For example, once a child is admitted to a school or healthcare centre where the required services are not provided before the decision is taken to shift the child to another institution, substantial amount of damage would have been done. Moreover, individual consumers of these services do not have complete information about the quality of services and their costs. In this situation, the providers of education and health services acquire monopoly power and are involved in exploitation. The role of government in this situation is to ensure that the providers of these services adhere to the standards stipulated by the government and charge the correct price.

Economic growth means the increase in real national income of a country. The contribution of the educated person to economic growth is more than that of an illiterate person. Education and health are important factors of economic growth.

Human capital contributes not only towards increasing labour productivity but also stimulates innovations and creates ability to absorb new technologies. Education provides knowledge to understand changes in society and scientific advancements. Higher income causes building of high level of human capital and also the high level of human capital causes growth of income,

It is difficult to establish a relation of cause and effect from growth of human capital to economic growth but with the help of the following table we can establish relationship between the two.

Select Indicators of Development in Education and Health Sectors:

The Table 5.1 shows that growth in each sector probably has reinforced the growth of every other sector. With the increase in literacy rate, per capita income and the life expectancy at birth have increased and infant mortality rate and crude death rate have decreased. Human capital is the most important factor of production in today's economy. Increase in human capital are important to achieving increase in GDP.