Human capital formation is the development of abilities and skills among the population of the country. In order to transform the liability of the huge size of population into assets, adoption of various measures for human capital formation is essential. Although the accumulation of physical capital is quite important in the process of economic growth of a country but growth of tangible capital stock depends extensively on the human capital formation. In the absence of adequate investment in human capital, utilization of physical capital will be inadequate, leading to retardation of development. In India, rate of human capital formation has consistently increased after Independence due to qualitative improvement in each generation. In the second decade of 21st century, the third generation of workforce is a qualitatively superior human resource in India. The rapid growth of Indian economy in response to improvement in the service sector is an evidence of cumulative growth of Human Capital in India. The Global Human Capital Index 2017 ranks 130 countries on how they are developing their human capital. Human Capital Index serves as a tool for capturing the complexity of education, employment and work force dynamics so that various stakeholders are able to make better informed decisions. The Global Human Capital Index 2017 ranks India at 103, in the last quartile of the Index. The World Economic Forum (WEF), Report 2015argues ― talent, not capital, will be a key factor linking innovation, competitiveness and growth in the 21st century. Though the country‘s current educational attainment rate has improved over past generations the secondary and tertiary education rates rank poorly. India ranks low on labour force participation with one of the world‘s largest employment gender gaps. In order to improve and realize the nation‘s human capital potential it must focus on increasing inclusiveness, expand the access to learning and employment opportunities. In order to overcome economic backwardness and to move towards progress and further development, it is necessary to increase the level of knowledge and skills of the people. In the absence of proper development of the quality of the human factor, India will not be able to attain the desired rate of economic progress. This Research Paper focuses on investments in education to develop Human Capital, the Education Policy, challenges before India to develop the Human Capital to cater to the future needs of the labour force and growing demands of the economy.