Money management: Is IIM fee hike justified?

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The Indian Institutes of Management (IIMs) have decided to hike their fees starting this academic year. The hike announced by IIM-A has been the highest from Rs 4 lakh to Rs 11.5 lakh for its two-year post-graduate programme in management. However, its governing body Chairman Vijaypat Singhania met Union Human Resource Development (HRD) Minister Arjun Singh on Wednesday and assured him that poor students will not suffer due to the hike.

The Minister also said that there was no question of intervening in the fee hike announced by the IIMs. Soon after the IIMs, the IITs have also proposed to increase their fees.

However, experts are not convinced that recovering costs or inflation have pushed up the fees. So is there something more to this than meets the eye?

This was the topic of debate on CNN-IBN show Face the Nation: Are the IIMs and IITs justified in hiking their fees?

The panel consisted of former director of IIT-Madras PV Indiresan, Editor of JAM Magazine and an IIM Alumnus Rashmi Bansal, Director of Centre for Forecasting and Research Premchand Palety.

Taking a hike

Those who support the hike argue that IIMs are facing a shortage of faculty and in order to get new teachers and retain existing ones, they will have to be given attractive fiscal incentives. Sixth Pay Commission recommendations for salaries have to be kept in mind and an IIM study shows that the cost per student is Rs 3.8 lakh per year as opposed to the Rs 2 lakh per year fees.

However, those who oppose the hike say that three-fold hike may affect access to economically weaker students. They also suggest that a gradual and graded increase will be better. Between 2002 and 2007, the institute raised its fees from Rs 1.58 lakh to Rs 2 lakh.

So, is this latest hike especially the quantum, justified?

“Firstly, I would like to assure all the students and parents that this fee hike will not affect any of you or your dreams of attending IIM-A. We have always catered to every section of society and the moment you get admission in the institute on the basis of merit, you are going to be eligible to a need-based scholarship for families with income of Rs 6 lakh per annum,” Rashmi said.

However, if there is enough buoyancy with money and revenue then why is the fee structure changing?

Defending the IIM stance of hiking the fees, Rashmi explained, “We have ambitious plans of being among the top 10 business schools or management institutes in the world and to do this, we need to enhance the programme we are running and to enhance the facility and the research that we do, we need money."

“I would like to point out that the IIM-A students who graduated this year got an average salary of Rs 17.5 lakh per annum. Hence we see no reason that we should ask the Indian taxpayer to subsidise those of us who are lucky and privileged enough to enter such an institute and get these kinds of salaries,” she added.

"So whatever fee hike is proposed, the students will be asked to repay the loan when they graduate. I don’t see any kind of burden," Rashmi explained.

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Taking the debate further, Indiresan explained the difference between the fee hike for IITs and IIMs.

"The case in management education and engineering education are different. All over the world the management students are charged what the market will bear and they pay a much higher fees than the others do. However, engineering education is a different thing altogether because they do not get highly paid jobs and also the cost of engineering education is much higher than the cost of management education. So there is a difference," Indiresan explained.

Questioning the transparency of the fee hike of IIMs, Palety said, "I oppose this hike simply because it is not transparent. We don’t know why they need the money and we don’t know where they will spend it."

All about money

Rashmi explained that the Board of Governors and director would clarify where the money will be spent.

"The point is that we will be raising money from various stakeholders, they will be the existing students, the alumni and the corporate world. It is because every educational institution needs funds so that they can become self-sufficient and is able to run its activities smoothly," Rashmi said.

Contending the issue, Palety questioned the need for IIMs to offer an explanation first and then hiking the fees.

"I used Right to Information to get the statistics for last year. The revenues from fees were Rs 17.3 crore, revenue from consultancy was Rs 15.22 crore and revenues from another source was Rs 9.9 crore and this makes a total of Rs 42.5 crore. Over and above that, they sold applications making Rs 25 crore. The faculty service amounts to Rs 10 crore. So even if they spend Rs 10 crore more on inflation or whatever, they are still left with Rs 20 crore," Palety argued.

Mismanagement of funds?

The accusation that Palety made is that the IIMs are not managing their funds properly.

"Probably they have to take lessons from (Railway Minister) Lalu Prasad Yadav by not increasing the fees and still run an institute profitably," he said.

Taking up the argument, Rashmi asked, "I want to understand why we should be subsidising education for students who will be going abroad and earn salaries in dollars and pounds. Any salary will be about Rs 18 lakh per year. Why should the taxpayers subsidise those people?"

She further argued that the funds are going to be put to good use.

Interrupting the argument, Palety asked, "What about students who want to run their own enterprise or run their own NGO. IIMs should be more professional in this aspect."

Agreeing with Palety, Rashmi said that the alumni and the management would step forward and help students who join the NGO sector or do anything outside the corporate arena.

However, she argued that when students are getting excellent jobs, then there is no reason why they should not pay back to the institute the value that they have derived from it.

"What if there is an economic downturn tomorrow?" Palety asked.

IIM monopoly

There is a claim that there is attrition in IIMs. So to retain talent, the fees has been hiked. However, this not does hold too much in terms of evidence. In case of IIM-A, there is a case of only one resignation in the last five years.

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On the other hand, there are many who feel that the IIMs are an established institution and so they are misusing their position, a monopolistic position in the market.

"It is not really fair to compare with the international schools because they do not have land given to them by the Government, they also do not have any subsidies given to them by the Government that help them start business. They do everything from the scratch privately funded," experts said.

However, Rashmi said, "Why are we defending the case of students who are willing to pay? I don’t see that it is going to be a burden to anybody."

"Established IIMs are doing much more by means of research. They have plans of becoming centers of excellence of management," she added.

But the IIMs are already centers of excellence. "They are, but they are not up to the international standards,” Rashmi retorted.

“We don’t rank anywhere in the top 10 management institutes of the world. We want to be rubbing shoulders with Harvard, Stanford, and that is where we see ourselves in the next five years. We need money to do that," explained Rashmi.

Disagreeing with Rashmi, Palety said that the IIMs already have the money for that. "The new IIMs are taking Rs 10 crore per annum grant. They got land building and all other facilities for free," he said.

But why are the new IIMs not raising as much money as the old ones?

"It is because they have competition from other good institutes like XLRI and FMS. In some places the fee can be a critical differentiator. However, for IIM Ahmedabad and Bangalore, there is no competition among target audience. They enjoy monopolistic position. They can charge whatever amount and there are students who are willing to pay," explained Palety.

The debate centered on the IIMs, however there was no contemplation on the hike of fees by IITs.

"The fees in the IITs are trivial as compared to the cost," said Indiresan.

"Typically an IIT student’s cost will be Rs 2 to 3 lakh per year. However, the fees charged is barely 20 per cent of that," he explained.

But what happens when IIT students go to IIMs and get a management degree and then go abroad and don’t stay or work in India?

Concluding the argument Indiresan said, “I have heard this argument so many times. Why do you pay an IIM graduate more and not an IIT engineer? First of all set right the society, set right the government and then criticise the engineers.”

Results of the SMS poll: Are the IIMs and IITs justified in hiking their fees?

Yes: 57 per cent

No: 43 per cent

CNN-IBN Editorial: Transparency required

A hike is warranted in the fees for IITs and IIMs. The reasons for IIM-A’s phenomenal hike though seem unconvincing. Recovering costs and retaining talent don't tell the full story. Many questions remain unanswered. The promise to increase scholarships can't be a reason to charge more; nor can the availability of finance. IIM-A needs to communicate its reasons more transparently. The bottom line is, for a public institution to charge more simply because it can, is vulgar. The country's leading management institution needs to be clean and transparent.

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