Are IIMs accountable? If so to whom?

Brilliant column from an iim prof

These are interesting times and interesting times are challenging times. There is a furore among some sections of the elite about the ministry of human resources development's recent directive to reduce the fee charged from IIM students. Normally one expects lots of enthusiasm for such a step. But in these globalising and reformist times more the fees the merrier [at least for those who are not prospective students.]

Let us look at some issues closely:

1.There is an 80 percent reduction in fees, from Rs 1.5 lakhs per annum to Rs 30,000 by the government order -- it is unfair.

The annual fees [excluding mess charges] have been increased from Rs 3,000 in 1991-1992 to Rs 1.5 lakhs in 2003-2004 which is a CAGR [compounded annual growth rate] of nearly 40 percent. Any economist would be amazed.

In these 12 years nothing has grown at this annual rate -- inflation, student strength, price of books, faculty size or salary and buildings. The first major fees increase in 1992-93 was undertaken by the IIMs to around Rs 8,000 with an understanding that an increase of around 10 to 15 percent or inflation rate [whichever is higher] will be made each year and on that basis the fees today, after these 11 years, would be around Rs 40,000 only.

The market can bear argument is not tenable when the IIMs are in a monopoly situation. Out of every hundred aspirants only one is admitted. By keeping the intake numbers low the IIMs have created scarcity with a dominant monopoly principle.

2. The board of the IIMs is the supreme authority in financial matters.

It is interesting that very recently [one week before] when the government announced [in the vote on account] the merger of 50 percent DA [dearness allowance] with basic pay, it was immediately implemented by the IIMs. This time nobody argued that the IIM board should discuss it and may reject this proposal. When it is convenient, the board's 'autonomy' is forgotten and the IIMs follow the ministry's instructions immediately.

The IIMs [for those not familiar] are not companies. They are societies which are creatures of the central government under the Registrar of Societies Act of the respective states. The memorandum of articles of association of the IIMs has not vested the board with financial decisions, pertaining to fees.

3. Students in higher education should not be given subsidy.

The IIM controversy: Complete Coverage

Fair enough. But from the canteen to electricity [24 hours] to housing to Internet [24 hours] to plumbing to garbage disposal in the IITs/IIMs, everything is very highly subsidized. For instance, the market rent for a three bedroom house with garage plus servant quarters with attached garden and full time security is around Rs 30,000 per month in many cities. But inside the IITs/IIMs people pay only Rs 1,500 to 2,000. How come the subsidy argument fails then? The argument on subsidies is a much larger issue not just applicable to students in institutions of higher learning only.

4. Can the IIMs manage with this reduced fee?

By all means. They can and will earn extra from sponsored research/consulting/executive programmes etc. Since, on these activities there are no 'fees' restrictions.

5. Bank loans are there.

Incidentally, one of the closely guarded secrets in our country is the percentage of NPA [non performing assets] in the loans given to IIT/IIM students. A couple of years ago one of the IIMs published a long list of defaulters [wilful defaulters] year-wise in their alumni magazine. But everybody thought it was an honours list!!

Informed bankers suggest there is less default among cobblers and tailors. The alumnus, having two bytes on television, should repay and encourage others to repay for further loan flow. To overcome this problem educational loans should be recovered like TDS -- the onus on the employer -- with every pass certificate stamped as 'loanee.' The passport should also should bear a 'loanee' stamp [for recovery before travel abroad]. There are issues of collateral particularly for students coming from rural and average income backgrounds.

6. The surplus with all IITs/IIMs is very useful.

It is kept in central and state government securities [the investment norms are -- up to 90 percent should be in government securities]. Some state undertakings are in such a situation that there is a question mark on the interest and principle to be received by the IIMs. It is like our foreign exchange, kept in US treasury bills earning 3 percent. At least, let us hope the US treasury will honour its commitments! Just having a corpus is no fun unless massive construction etc activities are undertaken. Buildings/pensions etc are always funded by the government.

7. Financial surplus implies world class and autonomy.

Neither is automatically true. This is a typical American notion that financial strength implies 'freedom' and 'independent.' Actually throughout Indian history, sages and fakirs who were totally poor were independent and did not worry about opposing the rulers. During the sixties/seventies, IIMs were fully dependent on the government but still had total autonomy. Also to note, that many capitation fees charging street corner colleges are 'rich,' but that does not make them world class. People have chosen/choose to be teachers since it is considered as a passion by them and not as a vocation or career.

8. Cost cannot be covered.

The government did not say anything about research/executive programmes/consultancy/international programmes etc. They are relatively tougher tasks compared to increasing fees for students. IIMs can and do earn from those sources much more. Globally all business schools subsidise post graduate courses from research/consulting and executive programmes.

9. IIMs are self regulating and know how to maintain global quality and hence they should not be questioned.

In the context of global schools, there is something called tenure track [permanent] which may not be got by all the faculty. In IIM/IIT structure after two years everybody is permanent and till retirement nothing can be done to her/him unless s/he indulges in grave sexual/financial etc impropriety. For academic non-performance nobody has been sacked/penalised in the last forty years in our higher learning portals. Hence all comparison with US schools is meaningless.

10. The minister is saffronising IIMs.

Unless it is felt Mr N R Narayana Murthy, Mr S M Dutta [ex-HLL], Mr Yogi Deveshwar [ITC], Mr K V Kamath [ICICI], Mr Ajit Nambiar [BPL], Mr Venu Srinivasan [TVS] etc are all saffron! All these were appointed on various IIM boards by Dr Joshi. Actually some saffronites complain that he has not appointed them to these places!!

11. Dr Joshi's style of functioning is not good.

There may be a point in this. It is complained, that he does not consult with a large body of academicians etc. The same is the case with many political leaders. As a wag commented most of our politicians stand between two mirrors [like in a saloon] and make consultations to conclude that they had consulted infinite number of persons!!

12. Four areas are critical for functional autonomy:

Curriculum
Recruitment of students
Recruitment of faculty
Promotion/assessment of faculty
None of this is currently under any threat other than the feelings [like the feelings of Bush on WMD] that 'they may be affected in the future.' More than the mirage of financial autonomy what needs to be stressed and preserved is Functional Autonomy.

IIMs are tax exempt entities under the assumption that they are organizations not for making profits. But recently they are claiming they are making huge surplus. This does not seem to be compatible with the original educational objectives. The bottom line --Are IIMs accountable? If so, to whom?

In a democracy it has to be to Parliament and the ministry and in a sense to society at large since IIMs are public organizations. Unfortunately for an institution like the IIMs the bottom line can never be profit after or before tax.

It is also interesting to note that the corporates who are making lots of noises have not come forward with huge funding to the IIMs like Rockefeller or Fulbright Foundations. There is a school of thought among some of the 'reformers' and 'globalisers' that the IITs and IIMs should be handed over to the private sector and this view is supported by some corporate chieftains and some in the English media.

That would be a sad day for our educational edifice built with so much sagacity and foresight. There are enough corporate sector institutions to worry about top line and bottom line. Let there be some institutions at least, in our country which are solely concerned about pursuit of knowledge and preparation of future citizens based on contemplation and a passion for research and innovation. I rest my case.

Needless to add, all these are my views and are not of the organization to which I belong.

R Vaidyanathan is professor of finance and control at IIM, Bangalore. He obtained his Fellow in Management (Doctorate) from the Indian Institute of Management, Calcutta where he also taught for four years.