IIM fee hikes a sign of financial mismanagement

livemint.com | Premchand Palety

A fee increase by Indian Institutes of Management (IIMs) has become an annual trend. For the two years I have been writing this column, IIMs have increased their fee around the first week of April each year and I have written about it on both occasions. This is my third column on the subject. This time, the top three IIMs have already announced a fee increase and the others may follow suit soon.

As in the past, the hike is unjustified, especially given the economic slowdown. In fact, it reflects financial mismanagement, especially at IIM Ahmedabad (IIM-A), which is spending at least 60% of overall salary expenditure on support staff. IIMs need to substantially increase their revenue from other sources and reduce their dependence on student fees.

Also See The Key Figures (Graphic)

I have been using the Right to Information Act, or RTI Act, for the past three years to ferret out information on income and expenditure from all IIMs. They usually do not give the latest financial figures because audited figures are not available.

Let’s take the case of IIM-A. The revenue figures refer to a period when the student fee was about Rs5 lakh for the full course. Even then the revenue and expenditure figures don’t warrant any fee increase.

Let’s take the case of IIM-A. The revenue figures refer to a period when the student fee was about Rs5 lakh for the full course. Even then the revenue and expenditure figures don’t warrant any fee increase.

The expenditure on support staff is 1.5 times more than the spending on faculty members, including their research and secretarial staff. In other words, 60% of expenditure on salaries is on support staff. Other IIMs fare better in this respect although the percentage of salaries paid to the support staff is relatively much higher (in the range of 30-40%) when compared with many lower rung B-schools in the private sector. At the Birla Institute of Management Technology in Greater Noida, near New Delhi, for example, only 20% of salary expenditure is on support staff.

In 2008-09, the total income from fees would have been about Rs40 crore for IIM-A. Assuming there is no growth in revenue from consultancy, management development programmes (MDPs) and faculty development programmes (FDPs), the total revenue from these heads would be about Rs25 crore. Thus, total income would be about Rs65 crore.

This does not include the interest on corpus or the income from sale of application forms, which rose to Rs25 crore for all IIMs last year. Even if the salary of faculty members goes up by 100%, the total expenditure under this head won’t be more than Rs11 crore. IIM-A needs to clearly explain why it needs more money.

In the case of IIM-A, it is also expected that the revenue from fees is only 30% of total revenue and the rest should be sourced from consultancy, MDPs and so on. But in the year 2007-08, the student fee component could have exceeded 60%, as is indicated in the table.

For IIM Lucknow, IIM Indore and IIM Kozhikode, the revenue from MDPs and consultancy needs to have increased substantially.

IIM-A will now be charging Rs12.5 lakh for its two-year programme. A student would be spending close to Rs15 lakh if we consider non-fee expenses during the programme. Middle-class students will be hit strongly by the fee hike as they are not poor enough to qualify for fee discounts but their family income is such that they have to depend on loans to finance their studies. For a loan of Rs12 lakh, the monthly repayment instalment would be Rs48,000, which needs to be paid after six months of getting a job. To be able to pay this amount, the gross salary of the graduate should be around Rs10 lakh per annum. This time the reported average salary at IIM-A for Indian jobs is about Rs12 lakh per annum. This means a good number of students have got a salary of below Rs10 lakh per annum.

Again, it won’t be financially viable for any of IIM-A graduates to join the institute’s doctoral programme, where the present stipend is about Rs15,000 per month. Even if the stipend is increased to Rs30,000 per month, the research scholars will have to depend on their family or some other source to make ends meet. The debt burden will also discourage those students who plan to start their own venture immediately after graduation.

IIMs should not lose sight of the fact that they have been built primarily by taxpayers money. If the fee hike trend continues, studying in IIMs could well become out of bounds for the majority of Indians.

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.