 Let us take the case of India. Now this is the case of our country. Now I just take two indicators. One is index of per capita income. It is not the actual per capita income in India. It is the index. I will explain what is index. And the other, this second third column is the literary series. Now this index of per capita income in the various censuses, 1951, 61, 71 up to 2001. These are the censors figures, censors years. And because censors have taken because the literary series is available for the censors only. When we take the below 100, index 100 for 1951, it means that per capita income we had in 1951 that is taken to be 100. It may be say 326. So 326 equivalent to 100. So 321 becomes 364. Instead of only 364, the equivalent 100 value will be 119.8. Similarly, in 1971 with the same prices of 1951, price level is fixed. At 1951 prices, in 1971 the per capita income of India, this index of India is 134.9. In 81, it is 144.7. Similarly, in 1991 it is 198.8. It is almost double. 198.8 means between 1951 and 1991 in the last 40 years, the per capita income of India becomes double. And then 2001 it is 254.5. That means it becomes 2.5 times. Now we look at the trade column. That is the censors figure on literary series. Literary series is also increasing. When per capita income is increasing, the index of per capita is increasing. Then literary series from 18.3 percent it increased to 28.3. Then it increased to 34.5. Then it increased to 43.6, 52.1 and finally 65.4. Again you can see there is a link between these two. There is a concept in statistics called correlation coefficient. And I calculated this correlation coefficient that is found with 0.95. So this indicates that very, very close relationship between per capita income grows in India as well as literary series. Now again that question comes. Whether the per capita income increases due to increase improvement in literature rate or literature rate improves because of increase in per capita income. It is very difficult to say which is true. Sometimes you can ask me the question whether egg comes first or hen comes first. Which one? It is very difficult to say. The same is the puzzle here. But again I tell you that education comes first in the sense that without education and training, you cannot have economic development. Then how does educational development increase? Economy efficiency becomes that. Economy efficiency means economy efficiency of the individual. And when economy efficiency improves, then definitely the development activity also increases. Income increases, there is social and economic development takes place. Now so far as the economy efficiency is concerned, it is measured in terms of what is the rate or return of education. Now when you make an investment say in an industry, what do you expect? You expect some return. So that is a financial return. So if you get more return, then you will make more investment. Say I give you two examples. Suppose for example if you make an investment in a rice mill and suppose in a share market, two options are there and you have 10 lakh rupees. So in taking a decision whether you will make an investment in rice mill or the share market, what is the criteria? You should give more return. If the rate of profit, rice mill is say for example say 10 percent. 10 percent if you get the profit and in the share market is a 15 percent. So of course in the decision, we will have to see the risk factor, no doubt of it. Although the share market is giving high rate of return, we will see the risk factor is also there. So the guiding factor is the rate of return. So similarly education also when you make investment, the guiding factor is the rate of return. When the government is making investment that is also guiding factor is the rate of return. When individuals is making investment, the guiding factor is the rate of return. Now why do you spend so much money for your children in education? Because I expect that there are two factors earlier, one is social factor. You must give education to your children. Secondly, instead of putting him or her in just general BA course, why you are putting in medical course? You expect more return from the investment. So her cost is because of two types of cost. It is the private cost plus government cost, private cost and public cost. Now what are the private cost of education? I have already given that. One is that the cost of tuition fees. Secondly, it is the expectation books and stationery. Then maintenance expenses. Then private tutors. If you engage some private tutors, normally in the matriculation and high secondary level, the guards normally put some private tutors. Those cost and maybe some other cost also. So it is cost of dress, cost of transportation. These are the cost of education, private cost of education. And what are the government cost of education? The public cost, the last point. The public cost of education includes the cost of the salary of the teachers and non-teaching staff. Then construction and building, provision of library books and journals, stationery and printing. So many other expenses are there for a school area. So these are the expenses that are borne by the government. Now the cost is borne by two parties. Government cost plus private cost. So the total cost is this public and private cost. And then we compare the benefit derived from this particular investment. Now besides the government and private cost, there is another cost called opportunity cost. The opportunity cost is, it is the income which is foregone for making higher education. Say for example, somebody of you, of course we are having these classes Saturday and Sunday. Suppose somebody is working in a particular school, I just give an example of this opportunity cost. Somebody is working as a school teacher and he has joined in the university as a student in academic classes. The school teacher, he was a graduate and he was earning some money. As a school teacher, let us assume that he was earning ten thousand rupees per month. And when he had enrolled in the university as a post visit student, he had to take leave. Not in a distance mode, in a regular mode. So he take leave from the school and if he does not get leave, he will resign. Let us assume that he is taking leave without any pay. So leave without pay means he has to forgo salary ten thousand per month in two years. It is about two lakhs forty thousand. So two lakhs forty thousand he has to forgo. So that is the cost of education. That is called opportunity cost. He has gone for a higher opportunity, higher education, so he has to incur some cost. That is the cost of, that he has foregone the income already earning as a school teacher. So that is the opportunity cost. So whatever the public cost, whatever the private cost. Plus the opportunity cost who are working in certain job. So that he is giving up, he is giving up the income already earning in the particular job. And that foregoing the income is also called opportunity cost. All these three cost together is called the cost of education. Now when we talk about the benefit of education. Benefit is the additional income earned by individual. After improvement in skill and knowledge to higher education. So far the benefit is concerned. Benefit of education is measured in terms of lifetime earning. Of additional income due to enhancement of qualification. Academic qualification free. So the example I have taken of this particular school teacher. I will just explain it again later. Now the rate of return. Once you find out the possible benefit. The cost consists of three parts. Private cost, government cost and opportunity cost. And the benefit is the additional income earned by individual. Because of the enhancement of qualification and training. So what is the additional income is the benefit. And that additional income is not only for one year or two years. It is a lifetime earning. So the benefit will go or benefit will accrue from the first year to the last year of the service. Suppose for example a person is getting master degree after his job say 24 years or 25 years. So from 25 to 60 years. So it is long 35 years. After getting master degree suppose the particular individual got a job in this college. This school job 10,000 income he will get about 25,000 income. They will jump in this salary. So this is because of the improvement in his qualification. He got master degree, he got net. He got first class in the master degree. So obviously he got a job in the college. And because of the job his income will increase from 25 years of his to 60 years of his. So 35 years he will have an immense income. And that immense income is the benefit. These benefits are the base year, first year, second year, third year like NFU. Suppose there are N years, 35 years. That is the benefit in the 35th year. So these are the benefits. B1, B2, B3, Bn are the benefits. Or B0 is also benefit. It is the base year, first year, second year, then NFU. Now I will explain the formula later on. Now these are the benefits. And benefits in each year is not the same. For the benefit you will get in 2010, in 2011 benefit will be maybe more. You will get an increment or some additional DNA challenge you will get. Third year benefit will be more. Similarly 50 or 60 or whatever it is. In the last year of your retirement benefit will be many years. So benefit is not the same. That is why I am just writing B0, B1, B2, B3, Bn. These are the benefits in the different years till the age of retirement. Now what is the benefit today? Somebody get, say for example, master degree, you will get a college job. And immediate salary is, the new schedule will be about 35,000. So just compare that the benefit is different. So what benefit I got in about 20 years back. Now the benefit, today's professor I get many times. That is why I am saying that B0, B3, B1, B2 etc. are different. It is not the same. When you calculate the total cost of education. The cost of education, we compare the cost of education with the benefit. And to find out the rate of return, we usually use this formula. This formula is called the cost benefit formula. We usually use it in an economic analysis. One side will put the total cost of education. And the right hand side will put the benefits. And benefits are discounted. Discounted by the rate of discount. R. So this is the, R is the rate of return. And the formula is this. Total cost is equal to, benefit in the first year. B1, 1 plus R2, actually in this year. You can also put it like this. So the science teachers will know it. Actually the first one is B0 divided by 1 plus R2 divided by 0. B1, 1 plus R2 divided by 1, B2, 1 plus R2 divided by 2, 1 plus R2 divided by n. So this is the usual formula for cost benefit analysis. And the same formula is used to find out the rate of return. And R is the rate of return by solving this particular system. And by solving this system, then we can get D will go up. R. So R is the call the rate of return. Now once you get a rate of return, then it gives us an idea that whether rate of return of education is higher than the rate of return of, say for example, physical capital. Physical capital means investment in machinery. Investment in fixed assets. Investment in land, investment in building, investment in machinery. These are the called physical investment, physical capital. And human capital is the investment in education. When you maintain investment in education, it will lead to development of human capital. And on the other hand, if you make investment in physical assets, it will lead to improvement in the physical capital. Now the question is that whether the rate of return in human capital is greater than rate of return in physical capital. Sometimes it may be greater than physical capital, sometimes it may be less than physical capital depending on the status of the economy. In a poor economy, in a underdeveloped economy, the human capital brings more return than the physical capital. And that is why you will find that most of the developing countries, underdeveloped countries, they make more investment in education. They give free education. But if you go to the developed country, you will not get free education. Primary level is okay. The higher level education is so costly that it will be not less than 30, 40 lakh rupees per year. Cost of education. Free as well as the maintenance of explanation. So why the underdeveloped countries, the developed countries give more emphasis on education, particularly primary education, because the rate of return is higher. That the whole countries of the world are divided into two groups. So this is the statistics provided by one social pillar. He wrote an article. Economy of education. So updated figures. Economy of education. So this is a study made long back, about 20 to 25 years back, in 80s. And in this study, he has indicated that the countries where per capita income is less than $1,000. That time, in 1983. The countries where per capita income is less than $1,000 in 1983. And the countries where per capita income is more than $1,000 in 1983. So dividing the world into two groups. One group he calls it the poorer country. One group he calls it the research country. At that time, India's per capita income was about $300, not more than that. So $1,000 is quite good at that time. So this is the division of the countries. And on the basis of the statistics, he found that investment in physical capital in the poorer country brings about 15.1% return. That means if you make an investment of 100 rupees, you will get an annual return of 15 rupees and a paisa. 15.1%. And the same 100 rupees, if you make an investment in human capital, in education, return will be 19.90 paisa. 19 rupees, 90 paisa. So a return in human capital is much higher than a return in physical capital. For example, I take it in the other way round again. Suppose you pay 1 crore rupees to be invested in a rice mill or in some industry. You will get 15 lakhs, 10,000 rupees as an annual return. And the same 1 crore rupees if you make an investment in education and train in your return will be 19.90 paisa. So purely from a commercial point of view, business point of view, your investment should be more in human capital. That is how you find that this is, education is a very good business. Education is a very good business in our country because the return is high. So what he predicted in 1893 that the return of human capital is more in poorer country than in the risk country. In the risk country, you just look at it in the second group of countries. The same investment brings more return in physical capital, 10.5 percent return in physical capital and the same amount of money in human capital in education brings you about 8.3 percent. So in the developed countries, it is more advisable to make investment in physical capital, industries and other physical assets. And in the poorer countries or the underdeveloped countries, it is more advisable to make investment in the human capital because the return is high. Return in human capital is high. Now I come to another table related to the economic efficiency. Now before that, let me ask you one question. These are the statistics provided by social workers. What is the justification for these statistics? What is the logic behind it? We get in the developed country, underdeveloped country, the developing country, the physical capital gives less return and investment in education brings more return. And in the risk country, investment in human capital gives less return. What is the reason for this? The reason behind it, because the rate of return depends on two factors. The one is the cost of education and the other is the benefit of education. Now so far as the cost of education is concerned, a major part of the cost is borne by the government. Whether you call it primary education, almost 100 percent. Secondary education is also almost 100 percent. Higher education is a major part. So, major part is borne by the state government. And whatever the cost of education is, borne by the private individual is very nominal. Very less. Say, hypothetically, for higher education, say let us say that 60 percent is borne by the state government and 40 percent is borne by the individual. And in the developed country, in the developed country, like USA, UK, Japan, that for higher education, 10 percent is borne by the state government and 90 percent is borne by the, almost 90 percent is borne by the individual. So, you bear more cost, but benefit is more or less same. Benefit is more or less same. A particular person getting mastery in USA after coming back to India is getting the same salary, but the cost of education is very high. He is spending several lakhs of rupees and a student doing mastery in Guwahati universities just spent, say, 40, 50, 60 thousand rupees, the whole course. So, definitely compared to cost, return is very high. Return is very high. That is why in the poorer country, this return is 19.9 percent and in the advanced countries, 8.3 percent, less than half because in the advanced country, you have to bear the higher cost of education. You now come to the other part of this. So, physical capital is concerned. Physical capital in the underdeveloped country, it is 15.1 percent, in developed countries, it is 10.5 percent. So, the reason behind it is that in the developing country, a small amount of investment brings out a large production because already our technology is very low level. Already technology is very low level and if you make small investment in this whole process of production, then it will give more production and profit. But in the advanced country, technology is already high and if you make a small investment, it will not bring any productivity. You will have to make use investment, then only get more productivity. That is why the return of physical capital is also low in developed countries. Both are low. Both human capital is low as well as physical capital is low. But the developing country, that human capital in developing country brings more return and in the developed country, physical capital brings more return. That is why in developed countries, government does not make investment in education and in developing countries, government makes more investment in education and the private organization also makes more investment in education. Education is a very good business in our country. That is why local investment is coming up. We forget about Guwahati and other places. You see many parts of the country, even the rural areas, these English schools are coming up. So, it is a very good business because people have an ambition to have better education to their children. I do not know whether it is better or worse. We are all integrated in the government primary school. Now, I take this example of this particular person about the rate of return. The person I was talking about, suppose he is a school teacher working in a high school. Let us assume that he worked in the school for five years after graduation, after BA and at the age of say 25 years. Normally, a student study or let us say 28 years. A student normally study master degree at the age of 21, 22. Let us say that after working five years in the school, he joined at the later age at the age of 28 years. The university, let us say Guwahati University, he suppose master degree in any subject, let us say education or history. And he was a school teacher while doing the school job, he was getting 10,000 rupees per month. So, when he has come to the university for two years, how much money he has to per go? He has to per go 2,40,000 rupees because he is not getting leave with salary, leave without pay. He has to per go 2,40,000. Then let us assume that the monthly expenditure is 5,000 rupees. So, 5,000 into 24, it comes about 1,20,000, say maintenance cost at the rate of rupees 5,000. So, it is 1,20,000. Then university fee, let us say in two years 10,000. So, these are the cost of education. All the particular person, this is the maintenance cost, minimum I am talking about 5,000 rupees per month. This is the two years fee altogether and this is the opportunity cost. So, this comes to our 3,70,000. This is the total cost of education of the particular school teacher. And hypothetically assume that this is, he has joined the Guwahati University in 2010. And by 2012, he will pass out. Or let us hypothetically assume that he joined the university in 2008. He joined the university in 2008 and he will pass out 2010. And let us also hypothetically assume that after passing out, he got a job. Let us say he got the net while doing the final year study. He got net and he pass out and in 2010, so it seems that he got a job in a good college. So, immediately his income become 25,000, minimum or 30,000. His income become 30,000 per month in 2010. In 2008, his income was 10,000. So, what is the benefit? Direct benefit is monthly his income increase by 20,000. And this you will get when his body is available in 2008, his age was 28 and in 2010, his age is 30. So, at the age of 30, he become a college teacher and he is now growing 30,000 per month. And prior to that, he was a school teacher and he was growing 10,000 per month. So, direct benefit, the monthly benefit is 20,000. And annual benefit that the figure I just gave you is B naught. The first value is the benefit in the first year, 20,000 per month in 12 months, his first B naught is 240,000. Then B1, at least it will be 240,000. It cannot be less than that, but you will get an increment and this increment is 3% of the total pay. So, let us say he become hypothetically 2,000, 2,000, B is 260, 2,000. Like that B4 is let us say 2,000, 3,000. And Bm, Bm means B30 because he joined the college at age of 30 and he will retire at age of 60. I mean B30 means 60 years of age. So, his salary will be not less than, I do not know at that time of his salary. Maybe some, his vanity may be 10 lakh rupees per year. Maybe 10 lakhs, maybe not less than that. Now it is 2.5 lakhs or 2.4 lakhs, but after 30 years it will not be less than 10 lakh rupees per year. Now what is his sacrifice? Sacrifice is 2 lakhs, 40,000 rupees per year for 2 years. That is his opportunity cost. Another sacrifice is that he has made expenses of 1 lakh, 20,000. So, 2 tail sacrifices, 3 lakhs, 70,000 is the total cost of education. And his benefits are 2 lakhs, 40,000, 2 lakhs, 50,000, 2 lakhs, 60,000, etc., etc. Maybe the last benefit maybe 10 lakhs rupees or 12 lakhs. So, total benefit goes on increasing. Then he has to make the comparison of his benefit along with this cost of education. Now when you compare, use this formula. After comparing, then you will find out the rate of return. Rate of return maybe I do not know. After calculation it will give you say maybe 20 percent or 25 percent. The value of R maybe 0.25 in percentage from it is 25 percent. Suppose if you say that benefits are equal, benefits are not normally equal, then you can take B common, 2 science teachers you know it. You can take B common and then it will be 1 plus 1 by 1 plus R, 1 by 1 plus R square, 1 by 1 by R to the power 3, then 1 by 1 to the power R to the power m. Then you take inversion, it will be 1 plus 1 plus R to the power minus 1, 1 plus R to the power minus 2, 1 plus R to the power minus m. So, you can follow the summation of series and you get the result. And the benefits are not equal, then also you can calculate it and find out the value of R. So, this is how, this is calculated and just look at it. The person making initial investment of 3,70,000 rupees and final benefit maybe I do not know 60 lakh rupees. By spending, by making investment of 3,70,000, the total benefit is 60 lakhs. Because again this question comes, because whatever the benefit he gets in 2010 and whatever the benefit 10 lakhs if he gets in 2040 after 30 years, it is not comparable because the value of money goes in decreasing. The value of money in today 2010 and 2040 is not the same. Getting 2 lakhs, 40,000 today and getting 10 lakhs after 30 years may be either almost same or may be less also nobody knows it depending on the cost of living. That is why this will have to be read discounted, benefit will have to be read discounted if you want to find out the real rate of return. This is the money rate of return, 20 percent or 25 percent money rate of return. But the real rate of return will be less because they are getting 10 lakhs rupees after 30 years and getting 2 lakhs rupees today. I think 2 lakhs rupees today is more than 10 lakhs rupees after 30 years. So you have to read discounted. That is some formula is the rate of discounting say commerce and business studies. What you can do that, you can find out the read discounted. The value of 10 lakhs at today's price will be some 2.7 lakhs. So that they will have to take. Then you will get the real rate of return. This is the money rate of return. Normally money rate of return is taken whatever you make investment today you will find out what will be the benefit in the long run. So this is how we find out the rate of return.