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T Thomas | January 23, 2004

The recent controversy regarding fees charged by Indian Institutes of Management and Indian Institutes of Technology has brought into focus the relationship between the government and academic institutions.

India was fortunate that Pandit Nehru had the vision to set up five IITs and the two IIMs (Ahmedabad and Calcutta).

His government had the wisdom to enlist the collaboration of some of the most advanced countries: the United States, the United Kingdom, Germany and Russia for the IITs, and Harvard Business School and MIT's Sloan School for the two business schools.

Because of these prestigious collaborations and adequate investment in the facilities and infrastructure, these institutions attracted some of the best managerial talent. The IIMs were initially headed by outstanding professionals from the private sector, and their boards reflected the quest for excellence.

An even more important factor that contributed to their success was the method of selection of candidates for admission, viz. meritocracy.

Out of over 100,000 applicants for the five IITs, only 1,000 students were selected each year, purely on the basis of merit.

They were naturally the cream of the country. Very soon the bright young engineers who passed out from the IITs discovered that engineering jobs were not as well rewarded or had the same scope for advancement as people in sales, marketing, commercial, etc.

So several IIT graduates set about to get an MBA.

That is how at one stage admissions to the two IIMs were dominated (to the extent of  70 per cent) by IIT graduates.

They were extremely bright, hardworking and young enough to spend two more years for an MBA. The reason why IITs and IIMs have performed well and why we can be proud of their alumni, is the high quality of students.

Government interference started with the relaxation of standards for scheduled castes in the late 1970s in the IIT admission process.

This created the first dent in the quality of students. The validity and desirability of such reservations are debatable subjects; this article is too short to discuss that.

The extension of the principle of such reservations to the teaching staff is an even more questionable step by the government because that cuts at the very root of the quality of teaching and hence of the institutions.

The second retrograde step the government took was to discontinue the collaborative arrangements with Harvard and MIT.

Some of the outstanding professors from business schools in the US can be persuaded even today to come to India as they will treat it as a sabbatical to learn about one of the most dynamic economies in the world.

Apart from their own individual teaching inputs, the resumption of such linkages will help to restore some of the standards in the Indian institutions and enable our teaching staff to get attachments and training in US business schools.

This practice of cross-national training is something that international companies have successfully practised over the decades.

Of course US business schools cannot be expected to bear the costs, which may add up to Rs 1 crore (Rs 10 million) per annum per professor, which has to be funded.

Now the government wants to control their fees and dilute their standards for admission. It is a recipe for disaster.

Unfortunately, government interference in educational institutions is not confined to IITs and IIMs.  It started with schools.

Even for schools that do not seek or receive any assistance from the government, educational departments of the state governments try to specify salaries for teachers and the level of fees to be charged by the schools.

Some of the best schools in the major cities are owned and managed by Christian organisations, e.g. St. Columba's in Delhi, St. Xavier's in Calcutta, Cathedral School in Mumbai, Christian College School in Chennai, Bishop Cotton's in Bangalore, etc.

They have to be eternally vigilant to protect their freedom.

Politicians are ever eager to bring them under some form of obligation to the government because admissions to such schools are much sought after.

These schools manage to maintain their independence by strictly avoiding any funds from the government.

For instance, although a vast majority of the students in Cathedral School (the most sought after in Mumbai) are Hindus, Parsees, Jains and communities other than Christians, the ownership and management responsibility is with St. Thomas Cathedral.

Being a minority school, it is protected from government interference.  It is this protection that has enabled schools like Cathedral to maintain their standard of excellence.

For the IITs and IIMs it is even more important to maintain their financial independence in relation to the government because they are even fewer in number as potential centres of excellence.

It is worthwhile therefore to consider how their financial independence from the government can be achieved. We can draw on the examples set by Christian schools in Indian cities and by the best universities in the US.

They raise funds through donations from companies, from alumni and from their fee income.

One of the main functions of the boards and principals of these schools is not only to maintain the high standards of excellence but also to raise funds from corporations and individuals who are keen to seek admission.

This enables them to build up a corpus without depending on government funding. The other avenue used by them is to raise their fees from time to time so that teaching staff can be paid better while setting aside some surplus for upgradation of facilities.

Their reputation and stability are such that they could raise commercial loans by discounting future streams of fees. This can make them less reliant on donations.

It will cost up to $60,000 per annum for a student to go through Harvard.

No one grudges this level of fees because graduates who emerge from them can command high remuneration packages.

But for funding their expansion and upgradation, these business schools receive massive donations from large companies like GM, GE, Sony, etc and from rich private foundations.

One of the major functions of the directors of these business schools is fund-raising. They never depend on funding by the government.

That is what enables them to maintain their independence and hence their excellence.  This can be done in India too.

For example, an IIM in India may need to raise Rs 10 crore (Rs 100 million) per annum to supplement its fee income.

To earn Rs 10 crore per annum at a return of at least 5 per cent on capital, the institute will need a corpus of Rs 200 crore.  It should not be difficult for the more outstanding IIMs to raise Rs 100 crore (Rs 1 billion) from the best 20 corporates in India.

If the donations are made tax-free and can be paid over a period of five years, the remaining Rs 100 crore can be raised over a period of time by (a) appealing to their alumni in the US and (b) by providing management training and consultancy services to companies.

As this process may take time, the IIMs could ask the government to phase out their support over five years instead of being cut off abruptly.

Once the board of the IIM works out a plan on these lines and sets targets, these can be achieved.  The goodwill (not finance) of government and support of alumni in India and in the US will be significant factors.

Of course all these will need a dynamic and well-respected director and key board members, including the chairman, who are there by merit and not by government indulgence.

If the IIMs can say "no" to government funding and take up the challenge of fund raising, they will be pleasantly surprised at their success.

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