ABSTRACT
The high growth rate of the Indian economy in recent years is attributed to the rising share of the service sector. Questions have been raised on the sustainability of services-led growth of the economy. The development of education and skills are critical for sustaining the high growth rate of the service sector, and in this context, analysing the contribution of education to economic growth assumes relevance. In knowledge-based modern economies, the role of higher education is even more important. Despite its important contribution, the role of human capital, particularly education, in GDP growth has not been given due attention, perhaps owing to problems surrounding measurement of output of the education sector. This chapter is devoted to issues relating to measurement of education sector output, and it also discusses alternative methodologies to address the same. The method proposed by Jorgenson-Fraumeni to more accurately capture the impact of education resulted in 17–19 times higher share in GDP than the current estimates of the educational services in the US. The chapter presents trends in the share of the education sector to GDP in India and its impact on improvements in quality of labour and also as an input in the production process. The chapter provides estimates of returns to education. The key challenges and policy issues facing the education sector in India are also addressed.
