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India's Best Business Schools- Interview (Dr. Bakul Dholakia)

“The Tale Of Management Education In India”

Dr Bakul Dholakia - Ex Director, IIMA

Do you think private B-schools in India really go by a rational while deciding on the fees for the management students as these days fees are skyrocketing and overtaking even the rate of inflation and all such factors which can be considered while deciding on such critical components of management education?

The private B-schools in India fall under three categories: (a) Those which are affiliated to a state university; (b) those which have Deemed University status; and (c) those which are autonomous institutions functioning directly under AICTE & granting PGDM (Postgraduate Diploma in Management). The fees charged by the B-schools falling under the first category (a) are regulated by the Fee Regulatory Committees of the respective State Governments and such fees are in any case quite moderate - usually around Rs. 2 to 2.5 Lakhs for a two-year MBA programme.

But the problem is that the quality of management education provided by this category of B-schools is generally mediocre and their placement performance is also inadequate. As a result, in many B-schools under this category, the actual intake is significantly less than the approved intake and the seats remain unfilled despite relatively low fees. As against this, the fees charged by the B-schools under the second & third categories are much higher, as they are outside the purview of the existing Fee Regulatory Committees of the State Governments. In fact, the fees charged by several autonomous B-schools (granting PGDM) are in the range of Rs. 12 to 18 Lakhs for a two-year programme. But, it should be noted that most of them face no problems in filling almost entire capacity of their approved intake with relatively better quality students, as the quality of education provided by these B-schools is significantly above average and their overall placement performance is also substantially better.

It is interesting to observe that till 2008, the fees charged by autonomous private B-schools were relatively lower, around Rs. 3 to 4 lakhs for a two-year programme. However, in the academic year 2008-09, the established IIMs led by IIM Ahmedabad, IIM Bangalore & IIM Calcutta decided to substantially increase the fees from the then prevailing levels of around Rs. 4 lakhs to more than 10 lakhs for a two-year programme, which in turn paved the way for the premier private B-schools to also raise their fees to similar levels from 2009 onwards. Since most of the well performing autonomous B-schools followed the pattern of established IIMs, there was actually no need for an explicitly defined rationale for a fee-hike of such substantial magnitude on the part of private B-schools! During the period 2010 to 2014, almost all private B-schools hiked their fees substantially following the pattern of the established IIMs. In this context, it is difficult to clearly establish any specific relationship between the actual cost of providing good quality management education and the fees actually charged by private B-schools.

To view list of Top 100 B-Schools - Click Here

However, given the current AICTE Norms regarding faculty-student ratio & physical infrastructure for a B-school for a two-year PGDM and the current cost structure for teaching & non-teaching staff and various facilities, the actual cost of providing management education of premium quality (at 2016 prices) is likely to be in the range of Rs. 6 to 10 Lakhs per student for a two-year programme (Rs. 3 to 5 Lakhs per student per year), depending on the size of annual intake, whether hostel is included or not and the actual location & overall product-portfolio of the given B-school. In my view, total programme fees exceeding Rs. 12 lakhs (for the two-year PGDM) would be difficult to justify on a Cost-Plus basis, assuming that the maximum permissible margin of surplus is 15% of the actual allocated total cost of the two-year programme.

IIMs still charge a modest fees while considering the quality of education students can secure from those premier institutes. But then while a few students manage to get highly rewarding placements through on-campus procedures, there are more who really do not get the worth of it when we compare to their investments as fees and sundries. Would not be our students rewarded higher and better after they end up paying a huge amount of money as fees and also some of them land up counting bank interests too as they opt for educational loans?

If we apply the above criteria, the fees charged by the new IIMs established after 2010, which are currently around Rs. 10 to 11 Lakhs for the two-year programme (including hostel charges), may be considered reasonable. However, the fees charged by the well-established IIMs, which are currently in the range of Rs. 16 to 19 lakhs, can be considered to be on the higher side, especially when we compare them with carefully computed & properly allocated actual costs per student. But, it should also be noted that all IIMs, especially the well-established IIMs charging higher fees, have already introduced an effective Need-based Scholarship Scheme since 2005 and, under this scheme, the students belonging to lower-income groups (who secure admission to IIMs) are actually granted Fee-Waivers ranging from 50% to even 100% in deserving cases. If the amount actually disbursed annually by a given IIM towards such need-based scholarship is adjusted against the annual revenue from fees, the effective average fees charged by the well-established IIMs would turn out to be around 20% to 25% lower than the respective stipulated amounts. Given the actual placement record of IIMs over the last five years, it is safe to conclude that the IIM students are getting a fair RoI on their total investment in acquiring management education from IIMs.

How has the educational loan concept taken off in India? What are the other steps government should take/ask the banks to take to ensure quality education is not compromised just because of paucity of funds for meritorious students?

The educational loan concept for professional courses has evolved in India over the last 5 to 10 years, but it has not turned out to be as successful as originally expected and, to that extent, it has not effectively taken-off so far. If we consider the proportion of students across top 100 B-schools, who have actually availed of this facility during the last five years, it can be regarded as moderate at best. And, if we restrict our analysis to those students belonging to the lower-income group, who have succeeded in getting the required amount of educational loans for MBA/PGDM courses, the results would be quite disappointing. This is partly due to the lending institutions asking for collaterals for sanctioning the required amount of loan and partly due to the relatively higher rates of interest charged by the financial institutions on educational loans. The relatively high fees charged by premier B-schools (more than Rs. 10 lakhs) may also be considered as a relevant factor in this context. This problem will continue as long as the Government does not place educational loans under the category of priority-sector lending and provide effective interest-subsidy on the loans given to the students belonging to lower-income groups.

Do you think students studying in overseas B-Schools get a right kind of RoI when it comes to their spending and placement offers?

In recent years, the cost of education for Indian students studying in overseas B-schools has gone up considerably partly due to depreciation of Indian Rupee and partly due to rising cost of education & living overseas. As against this, the job opportunities for Indian students abroad (with overseas MBA) have gone down in the aftermath of global recession, especially during the last 5 to 7 years. As a result, the RoI on management education overseas has declined during the last 5 years.

Is management education in bigger and superior B-schools still confined only for the rich when it comes to India? Do you think there should be higher amount of scholarships covering more students?

Since 2010, management education in India, especially in premier private B-schools, is primarily confined to the students belonging to the upper-middle income & high-income groups. This mainly due to the fact that such B-schools charge high fees comparable to the well-established IIMs, but do not provide large-scale need-based scholarships to the students belonging to the lower-income group on the lines of IIMs. Unless the premier private B-schools adopt an inclusive approach and introduce an effective scholarship scheme for the eligible needy students, management education in premier private sector institutions in India would remain largely in the domain of the relatively affluent group of students.

(As told to Poonam Singh)

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