Investment in human capital formation is considered as efficient and growth enhancing. Investments in education convert human beings into human capital, which represents enhanced labour productivity. This is an acquired ability and an outcome of deliberate investment decisions with an expectation that it will increase future income sources.

Economic growth means the increase in real national income of a country. The labour skill of an educated person is more than that of an uneducated person, and the former generates more income than the latter. Therefore, the contribution of an educated person to economic growth is more than that of an illiterate person.

Similarly, if a healthy person could provide uninterrupted labour supply for a longer period of time, health becomes an important factor for economic growth. Thus, both education and health, along with other factors like on-the-job training, job market information, and migration, increase national income.

Human resources development has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population. Trained and educated on sound lines, a large population can itself become an asset in accelerating economic growth.

There are reasons to believe that the causality between human capital and economic growth flows in either direction. That is, higher income causes building of high level of human capital and vice versa, meaning a high level of human capital causes the growth of income.