IIMs’ Fee Hike Does Not Match Salary Increases

The Wall Street Journal | Premchand Palety

The fee hike in the top three Indian Institutes of Management has become an annual ritual. Since 2004, the tuition fee has been increased every year in these institutes. IIM Calcutta had announced, few days back, that it will now charge Rs 1.35 million for its flagship post-graduate management program, a steep hike of 50% over last year, and the steepest hike in its history so far. IIM Ahmadabad and IIM Bangalore have also announced that their fees will be increased to Rs 1.37 million and Rs 1.30 million respectively. In the past nine years, the fee in these institutes has increased nine fold (see table below) where as the average salary that a graduate gets has just about doubled.

The fee hike pattern for IIM A

Year

2002

2005

2006

2007

2008

2009

2010

Fee #

1.5

2

3

5

11.5

12.5

13.5

# (fee for full course in Rs hundred thousand)

For the last five years, I have been using the Right to Information act to obtain information from these institutes. On the basis of that data I can say that the hike in fee is operationally unjustified and is an irresponsible use of the IIMs’ immense popularity.

The press release from the IIMs attributes the fee hike to the 6th pay commission recommendations. But the income and expenditure statement of IIMA indicates that they have already cleared the 6th pay commission arrears in 2008-09 (see table below).

IIMA Income and Expenditure figures for financial year 2008-09

Income

Rs. Million

1

Revenue from fee

348

2

Revenue from consultancy

206

3

Revenue from  MDPs

119

4

Income from CAT

30

6

Placement Income

34

7

Research Project Income

36

8

Interest on Investment

41

9

Other Income

156

10

Total income

972

Expenditure

Rs. Million

1

Total expenditure on account of salaries paid to permanent faculty members for year (2008-09)

39

2

Total expenditure on account of salaries paid to visiting faculty members for year (2008-09)

4

3

Total expenditure on account of salaries paid to support staff for year (2008-09)

84

4

Expenditure on account of building maintenance

7

5

Expenditure on account of new construction (capital expenditure)

57

6

Other establishment expenditure

(incl. arrears of 6th pay commission)

274

7

Other administrative expenditure

72

8

Direct expenditure on Long Duration Prog.

180

9

Expenditure on MDP Programs & Projects

261

10

Total expenditure (excluding depreciation)

978

Source : Data obtained from IIMA by Premchand Palety using RTI act

Source : C fore Survey

In fact a closer look at their financial figures indicates inefficient management.

For instance, the income and expenditure statement of IIMA above, that I obtained using RTI last year reveals the following:

* The salary paid to permanent faculty is only 4% of the total revenue of the institute.
* The expenditure on account of salaries paid to support staff is more than double the expenditure on salaries paid to permanent faculty.
* The expenditure (other than faculty pay) on Management Development Programs, research and consultancy is over
72% of the income generated from them.
* The expenditure on clearing 6th pay commission arrears, new constructions, and long duration projects is about 52% of the total expenditure.

Even in second rung private B-schools like Alliance Business School in Bangalore or Birla Institute of Management and Technology (BIMTECH) in Greater Noida, the expenditure on support staff is below 20% of the salary paid to their permanent faculty. For MDPs , research and consultancy, the expenditure should typically not have exceeded 30% of the income.

True, they have been burdened by the government policy of reservations and they have to create new infrastructure to accommodate reserved category students. But shifting the burden of clearing 6th pay commission arrears, capital expenditure and long duration projects in one go onto students’ tuition fee is not justified. Such projects could have been financed from their corpus or other sources and the burden passed in installments to subsequent batches.

Ironically, it is the reserved category students who will suffer the most with the hike. Most of them are heavily dependent on the pay packages that they are going to get after their course of study. For a loan of Rs 1.3 million the monthly installment to be paid by graduates is about Rs 39,000. Unless a graduate gets a cost to company (CTC) offer of about Rs 1.5 million per year, repayment of the loan will be difficult. The average salary package reported for this year in these institutes is about Rs 1.4 million per year. A large number of students had offers below Rs 1 million.

IIMB has announced that it will return the tuition fee of those students who join a non government organization for three years. Will they also return the tuition fee of those students who are unable to get jobs or who get low pay packages? More importantly what about those students who choose to become entrepreneurs? Won’t high tuition fee discourage entrepreneurship? For those who decide to enroll in a doctoral program in the IIMs with a stipend of about Rs 25,000 per month, the going will be even more difficult.

IIMs have been built using government subsidy and for over 40 years, the top three IIMs have been getting regular multi million rupee annual aid. They owe it to the nation to provide an affordable education to students.

Premchand Palety is chief executive of the Centre for Forecasting & Research, or C fore, and a contributing editor to india.wsj.com‘s management coverage.

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