B-schools must be ready for an economic U-turn

livemint.com | Premchand Palety

Most economic indicators worldwide suggest that the prevailing economic slowdown may turn out to be the most severe downturn since the Great Depression of 20th century.

The most recent International Monetary Fund study on global financial stability shows all emerging economies, including those with limited global exposure such as India, will be severely affected by the crisis. It is now estimated that about 20 million jobs will disappear worldwide by the end of 2009 from this crisis alone.

India’s business schools ought to plan and prepare for a meltdown whose severity is only going to increase in the coming months.

The most obvious impact of the downturn is going to be on placements—it could be felt partially in the 2009 placement season and to a great extent in the season of 2010. Banking and finance, and information technology firms, were the major recruiters in the last placement season, recruiting about 20-37% respectively from top MBA campuses. Since both the sectors are reeling under a downturn, Indian B-schools will have to depend a lot more on other sectors, such as consumer products, telecom, retail and non-profts, which might be relatively less affected by the looming downturn.

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Some of the woes of the private sector—the backbone of B-school recruitment—could be mitigated by proactive government actions and spending. As private investment slows, including from what appears to be a self-imposed spending paralysis that has already set in, the Union government can drastically increase public spending in areas such as infrastructure, metals and manufacturing, which could help create more jobs even in this increasingly dire environment.

If the government steps up spending, including on health and education, to infuse liquidity into the system, B-schools will have to embrace the often shunned public sector as well as the often neglected non-profit, non-governmental sectors. For instance, government banks, which are perceived as relatively safer institutions by depositors, will be in a relatively better position to hire MBA students.

The good news for many B-schools is that some public sector banks, such as State Bank of India, Andhra Bank and Punjab National Bank, have been regular recruiters of their graduates.

Even if raising money will be difficult in this environment, smart B-schools should use the relative drying up of corporate safe-haven jobs to focus more on promoting entrepreneurship among students. Not just motivating them to be entrepreneurs or introducing relevant courses but also by developing incubators on campus for smart and executable business ideas, so risks and rewards can be shared alike even as students can be taught to raise capital in partnership with the institutes.

Many B-schools themselves may not be financially affected by recession as most of them are often totally dependent on fees collected from students and education is one area where most Indian parents are unlikely to cut back even in very difficult times. The income from management development programmes (MDPs) and consulting is already falling as companies cut back. The good news is that such income hasn’t yet become a critical fund-raising tool for most Indian B-schools.

As for students, it is a tough time.

Generally, during economic downturns, enrolment in B-schools increases as both the laid-off as well as newly minted undergrads without jobs turn to higher education. But if the consensus predictions of the duration and severity of this downturn turn out to be true, then it is anybody’s call as to when normalcy will return to recruiting from campuses.

When the Indian Institutes of Management (IIMs) increased their fees this year, one of the justifications was the high starting salaries students were able to get in recent years. If starting salaries now go down—I suspect by up to 30%—then servicing student loans won’t be easy, much more so for those who got to these campuses in the reserved categories. Smart B-schools could well bite the bullet and cut their fees.

Finally, it is also a time for many of these B-schools to look closely at their complicity. After all, the banks and companies at the heart of the meltdown are mostly run by MBAs, especially from top B-schools. And can you name one Indian IIM faculty member whose understanding of global finance or business led this person to warn all of us of where the global—or Indian—economy was headed, let alone predicting the crisis?

Premchand Palety is director of Centre for Forecasting and Research (C fore) in New Delhi, from where he keeps a close eye on India’s business schools.

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