There is no justification for IIMs to hike fees

There is no justification for IIMs to hike fees
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First Published: Sun, Apr 06 2008. 11 21 PM IST
Updated: Sun, Apr 06 2008. 11 21 PM IST
The steep hike in fees by the Top Indian Institutes of Management (IIMs) would have made many prospective students and their parents pray that Murli Manohar Joshi is back as HRD minister. Or was it anticipating such a change that they went for this quantum increase in fees?
I used the Right to Information (RTI) Act last year to get the income and expenditure figures of IIMs. Based on that data, my view is that this hike is unjustified and irresponsible use of autonomy. The IIMs need to clearly specify what they are going to do with the surplus income generated.
When IIMs hiked their fees last year, I had predicted, in this column, that fee hikes were likely to continue if these institutes didn’t lower their dependence on fees for their sustenance. But I didn’t anticipate this kind of increase in one year, especially by the IIMs at Ahmedabad (IIM-A) and Bangalore. The hike has been the maximum at IIM-A. For the flagship course in the institute, a student will have to pay Rs11.50 lakh, a hike of about 150% in one year! If we do a quick analysis of income and expenditure figures of IIM-A that I got last year using RTI, the hike seems unnecessary. For 2006-07, IIM-A’s revenue from fees was Rs17.3 crore, revenue from consultancy was Rs15.22 crore and revenue from management development programmes was Rs9.97 crore. The total income from these heads was thus Rs42.5 crore. Expenditure on account of faculty pay, even if we take into account the Sixth Pay Commission’s recommendations, won’t be more than Rs10 crore. Besides this, all IIMs together make more than Rs25 crore by sale of application forms.
Again, with an increase in batch size this year, IIM-A will benefit from economies of scale. If even after all this it says it needs more money from students, then it’s a serious mismanagement issue. In fact, if properly managed, IIMs can significantly hike faculty pay without raising the student fee.
Since IIMs have not been transparent about the hike so far, there have been speculative reports in the media, such as those claiming IIMs are taking the common admission test online. Some say the money is to be used to fund the capacity expansion needed to accommodate reserved category students. But students can’t be burdened with such capital expenditure; the government has already made funds available for this. Moreover, some IIMs have a huge corpus to finance such projects.
Some justify the hike in fees by comparing it with the fees of top B-schools around the world. But should they be competing with such schools only in terms of fees? Shouldn’t they be concerned first with delivering similar quality of education? And if we factor in purchasing power parity, they are in fact charging more than some of the top global B-schools. Back home, if the Indian School of Business charges more than Rs16 lakh for its one-year programme, it has some valid reasons. It has to pay not only the professional fee but also travel charges for their borrowed faculty, who charge in dollars. Besides, it has the burden of a huge loan that was taken to set up its campus. But IIMs have used government grants to build their infrastructure. Some of them are still using taxpayers’ money to sustain themselves. This makes it obligatory on their part to charge fees that are sufficient to meet just their running expenses.
One other interesting justification often given for this steep hike is the placements that IIM graduates get. If the average annual salary that an IIM-A graduate gets is more than Rs17 lakh, charging high fees doesn’t seem exploitative. First of all, these salary figures that are released to the media are loaded with many cost-to-company gimmicks. I have written about it in an earlier column (“Placements eclipse leadership role,” 26 March). Then, what about those students who opt out of placements to start their own enterprise or who join non-governmental organizations at low salaries? Won’t this hike discourage such initiatives? True, loan facilities are available for students, but is it a good idea to burden students with huge loans at the start of their career? What if there is an economic downturn and some of the students are not placed at all? This scenario is very much possible when caste-based reservation is fully implemented. Will the management return their fees? If IIMs have to act as just placement agencies, then perhaps they should do it more professionally. Maybe they can take the cut from the salary that each student gets.
There is also a difference of opinion on the fees issue between the established IIMs and the new ones as one IIM director told me. Last year, the directors of the IIMs at Indore, Kozhikode and Lucknow had opposed the hike in fees. Logically, they should have gone for the maximum hike as they are heavily dependent on student fees for their sustenance. They haven’t done so, not because of benevolence, but because they have to compete with other top B-schools such as XLRI, Faculty of Management Studies, Management Development Institute, SP Jain, etc., for good students. Fees can be a critical differentiator in influencing student choice. The top IIMs, however, have no competition among their target audience, and enjoy monopolistic status. The hike is in my view a misuse of this status.
Premchand Palety is director of Centre for Forecasting & Research (C-fore) in New Delhi, from where he keeps a close eye on India’s business schools. Comments are welcome at businesscase@livemint.com
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First Published: Sun, Apr 06 2008. 11 21 PM IST