Purpose
– This paper aims to examine the impact of caste and religious diversity on human capital outcome and external effect of ethnic capital on human capital accumulation process based on social fragmentation of West Bengal state which is mainly shaped under caste and religious lines.

Design/methodology/approach
– A field survey was undertaken in which 440 respondents belonging to 440 households were interviewed in four municipalities of West Bengal – one each for most homogeneous and most heterogeneous along caste dimension and the equal number along religious line. For a cross sectional study during a one-year period between January-December 2006, this study considers stratified random sampling method (a mixture of both purposive and random sampling). In addition to construction of caste and a religion based fractionalization indexes, this study considers regression analyses of ordinary least square method in order to explore the stated objectives.

Findings
– It suggests that more heterogeneous localities have lower outcome of per capita education after controlling the effect of per capita income. Moreover, the external effect of ethnic capital in heterogeneous localities has also lower outcome of human capital accumulation process.

Originality/value
– The lower human capital accumulation in the heterogeneous localities along caste and religious dimensions might play an adverse effect on economic growth, crime, markets, technological breakthroughs and the arts and science. So, institutional measures by government and non-government sources are needed to improve the stock of human capital, particularly in the heterogeneous localities influencing the positive impact on higher socio-economic outcome in those localities.