Schools at the bottom of the hierarchy are being crowded out by capacity expansion at better-quality institutions, a bad job placement scenario last season and the increased awareness of students about B-school quality.
Says Aradhana Chopra, deputy director of All India Council for Technical Education (AICTE): "Last year, over 20,000 of about 130,000 AICTE-approved management program seats were vacant. The prime reason for this could be the high increase in the supply side. There has been liberal granting of approvals for new institutes and also capacity expansion of the existing ones in the last five years. This year, more vacant seats are expected as many new approvals have been granted in last year."
The capacity increase in top B-schools, including the Indian Institutes of Management has been dramatic in the past four years, with the student bodies soaring. At IIM-Ahmedabad, for instance, the student intake has risen to 381 in 2009 versus 250 in 2006. At IIM-Kozhikode, it has risen to 261 versus 120. This has created student scarcity for lower rung B-schools.
The drying up of corporate jobs last year also affected student inflow to campuses. "The last placement season, when in many campuses even half of the students couldn't be placed, has dampened the enthusiasm for management education," says H. Chaturvedi, director of the Birla Institute of Management and Technology, a top-ranked institute in Greater Noida.
The fee in most B-schools has also increased by 50% to 100% or more in the last three years. From a return on investment perspective, MBA education is not as lucrative as it was before the economic slowdown. Perhaps as a consequence, last year -- for the first time in its 28 year history -- applications for the common admission test saw a drop when compared to the previous year.
Last year's bad placement performance has, in a way, made prospective students and their parents more cautious. Says Dr. Chaturvedi: "Now prospective students make a lot of inquiries before applying to an institute and are not just swayed by advertisements. This could be the reason that many dubious B-schools are not getting students. Many of those schools that started after 2007 are also finding it very difficult to get students as their credentials are not yet established."
To get students, B-schools are trying various tactics apart from the regular advertisements.
"Many B-schools, especially the lower rung ones, are offering commission to their existing students and even faculty for bringing in new students," says S.R Singhvi, a faculty member of the International Management Institute (IMI). Dr. Chaturvedi confirms this practice. "One such B-school in Greater Noida is offering a commission of 50,000 rupees per student to agents and also to existing students. The practice is also prevalent in west and south India."
Those schools which have good systems and processes in place have no problem in getting students, says Dr. Chaturvedi. Unfortunately, he adds, the number of such schools won't be more than 30.
If foreign universities are allowed to set up campuses in India , which in all likelihood will happen this year, the competition to get students is going to get even tougher. Perhaps the only mantra for those B-Schools that intend to stay in business is to benchmark themselves against best international institutes and elevate their standards.
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.