Human capital externalities play a central role in endogenous growth models. Many economists base on those externalities, their belief that government intervention in the provision of education is essential . This paper tries to use the particular low levels of education and literacy rates in India for measuring human capital externalities. Households' expenditure per capita is highly correlated with average education in their regions, even after controlling for Household's own level of education and after controlling for the region's ¯xed e®ect. The size and the robustness of the results are quite impressive, especially compared with the private returns to education. Contrary to a general equilibrium interpretation of the e®ect, educated workers are not damaged by an increase in the supply of educated workers. Externalities are much more pronounced in nonprimary industries, where human capital plays a more signi¯cant role in production.