Apr 1, 2008

MBA Tour - The price of an MBA

The price of an MBA

Are the Indian Institutes of Management (IIMs) justified in raising the fees for their two-year post-graduate management programmes as steeply as they have done for the forthcoming academic sessions? There are strong arguments for and against the decisions but, on balance, the yay-sayers probably have it and for good reasons. The IIMs are premium institutes of higher learning that command global respect. Judging from the salary offers that break new records every year IIM "products" are as much in demand at blue-blooded Indian and multinational corporations as graduates of leading European and US B-schools. Paying, say, Rs 800,000 ($20,000) to Rs 11,50,000 ($28,750) for an intensive two-year course that sets a person on a high-growth, high-earning career trajectory can hardly be considered over-payment; most people look on it as an investment in the future. True, there are many students from less affluent homes that are compelled to borrow from banks to finance their MBAs from these IIMs. But few should have difficulty repaying these loans once they are employed. However, it needs to be ensured that scholarships are available to the needy, and that graduates who move on to public service or civil society involvement (which do not pay enough to repay loans) are given post facto fee remission — as is done by some American universities.

So much for the fee rise from the students' point of view. What of the issue from the institutions' perspective? Apart from the ability to invest in state-of-the-art facilities, the principal sticking point here has been the low remuneration paid to IIM faculty. IIM professors remain a poignant counterpart to their high-earning alumni. In general, academic salaries in institutions under the purview of the government and/or the University Grants Commission (UGC) have long been abysmal. Amazingly, faculty at the IIMs and IITs, being government institutions, are subject to these pay-scales too. They not only lag their global counterparts by a huge margin — even in purchasing power parity terms — but also their colleagues in private institutions in India who are by no means generously paid. To be sure, the UGC scales will continue to apply, but with higher fees the IIMs will have the flexibility to consider solutions similar to those followed by many public sector banks. Like any government-owned institution, senior bankers in public sector banks suffer the malady of low pay scales. To get round this, many such banks offer valued senior executives contracts that are more in tune with private sector salaries and outside the purview of government scales.

The issue is complicated here because the ministry of human resource development has often argued that a low fee structure is compatible with its policy of equity in higher education. And though most IIMs no longer depend on official grants, the government remains an influence courtesy the initial capital and land it contributed to set up these institutions. But as even the government has begun to recognise, the IIMs and IITs are a special case in the age of economic liberalisation and globalisation. Their raison d'etre is to provide an elite management cadre for corporations. Their students get offers on a par with their counterparts in global B-schools. To charge sub-par fees and pay faculty poorly is quite out of synch with this context. That probably explains the government's somewhat non-committal response to this latest round of increases — it's a tacit acceptance of the new reality. Also, with its ambitious plans to set up seven new IIMs in various parts of the country, the government probably recognises that it will not be able to attract faculty if it offers sub-standard pay and facilities. It is true that education can never be viewed from the purely commercial angle. But equally, business education can hardly be detached from the realities of the business world. Source