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Dr. Joshi, you are wrong Omkar Goswami
Let me begin with two confessions. First, I have neither studied nor taught at an Indian Institute of Management. So, nothing that I am writing here can be ascribed by anyone as unseemly loyalty towards one’s alma mater. Second, I am not going to argue on whether the Ministry of Human Resources and its chief, Dr. Murli Manohar Joshi, has the unilateral right to impose a fee structure. He may or may not have such a right; but that’s not what I wish to get into. Let the various IIM’s Boards and societies discuss that matter.
My problem with Dr. Joshi’s fee cut from Rs.1.5 lakh per annum to Rs.30,000 belongs to a completely differently space. It has to do with the sheer economic undesirability of the act. Here are the facts. Today, a student who secures admission in IIM-Ahmedabad, Kolkata and possibly Bangalore will almost certainly get a highly paid job through campus recruitment. Estimates of the starting salary vary, but I doubt whether anyone hired from the IIMs will get less than Rs.4 lakh in cash, plus other perquisites taking it to around Rs.6 lakh. Assuming a modest 20 per cent annual increments (why would someone graduate from an IIM if she can’t get a 20 per cent annual hike?), my guess is that the minimum net present value of a IIM graduate over the first six years of her career will be in the region of Rs.47 lakh. Knock off a net tax outgo of 25 per cent, and an IIM alumnus, at the very least, will have got an NPV of disposable income in excess of Rs.35 lakh. That’s pretty good stuff, any way you look at it. Note, that this calculation ignores the top graduates who are being paid dollar salaries either in India or abroad. The annual fee for an IIM student before Dr. Joshi got into the act was Rs.1.5 lakh, or Rs.3 lakh for the course. In other words, the old fee was just 8.5 per cent of the disposable income of the first six years of the lowest quartile IIM graduate. Every bank knew this very well — which is why bankers were only too willing to advance loans to anyone who secured an IIM admission. Indeed, I don’t know of anyone in the last decade who secured admission in one of three big IIMs but couldn’t join because of lack of funds. In a gesture of overarching munificence, Dr. Joshi has reduced this share of fees to disposable income from 8.5 per cent to 1.7 per cent. In the US, this ratio is around 40 per cent. I can’t for the life of me understand why. When an IIM student can get a bank loan with almost hundred per cent probability, why should Dr. Joshi reduce the fee by 80 per cent? Why should the Government of India — which governs a land where at least a fifth of the people live below poverty line — want to subsidise people who would belong to the top half per cent of Indian income? What kind of economics is this? Having been a teacher, I am painfully aware of our under-funded academic institutions. Most departments of physics, mathematics, statistics, chemistry and biology have grossly inadequate facilities. Visit some of the universities, and you will see horrendous libraries, dirty classrooms with broken blackboards, dilapidated laboratories, inadequate computing facilities, and every other shortage that you can imagine. The humanities departments are even worse off. Everybody agrees that India needs many more scientists; and, as a civilised nation, we must have more people trained in the humanities and social sciences. These are grossly under-funded departments, and need much greater support. The best post-graduate students in humanities and sciences suffer from poor facilities, and can’t hope to be paid even a fraction of what an IIM MBA earns. Thus, students of science and humanities don’t get bank loans; they need scholarships.
Instead of addressing the crying needs of higher education, what does Dr. Joshi do? He cuts the fees of future financial fat cats by a fifth — and thus raises the subsidy for those who need it the least. If that is good economics, then I must be a Bharat Natyam dancer.
Published: Business world, April 2004
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