Business Standard

Management education sees a meltdown

Quality, fees and the lack of brand equity are some of the issues turning people away from what was once a red-hot sector

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A complaint letter written by a third year student against a now shut management school, on an online consumer complaint forum embodies what seems to be ailing the current management education scenario in India. According to the student, the same professor was taking classes on subjects as varied as finance, information technology and economics. There were additional fraudulent activities in arranging student loans, and leasing students out as free employees in the name of internships, among other things.

There are a whole host of other reasons that have turned students off B-schools — so much so, that over 70 of them across the country closed down over the last year. For an industry which, according to data by research consultancy, KPMG, was mushrooming at 1600 per cent over the past two decades, this is more than just worrisome.

Whether it is the economic malaise, the grandiose acts of frauds by global corporates such as Enron in the last decade or the fact that many MBAs were undoubtedly behind the sub-prime meltdown, the fact is that the number of applicants that take the Common Admission Test (CAT) —the common management school entrance exam — which was growing steadily from 1,80,000 in 2006 to 2,30,000 in 2009, at a steady 27 per cent, has now declined to as low as 1,85,000 takers in 2010 and has since then consolidated at about 1,86,000 since then.

“There is a marked gap between the supply of management education schools and the interest among the students for management education. In the light of declining numbers interested in management education, it would be difficult to meet even basic expenses,” said Asish K Bhattacharya, director at Institute (IMI), Kolkata, the branch of Sanjiv Goenka controlled IMI- New Delhi. The resulting problem? “This has meant that the institutes that created infrastructure and capacity in tandem with growth expectations by 2009, now have excess faculty, and costs that are not commensurate with the demand,” said Bikram Dasgupta, owner of the Kolkata-based Globsyn Business School.

Education has always been a lucrative space, and doubly so in a fast growing country like India. According to data in the 2010 report by PricewaterHouseCoopers (PwC), the private spends on higher education in India were pegged at Rs 30,400 crore. In addition to this, the government spends an additional Rs 31,000 crore on high education.

While much of the management education space in India remains unregulated, industry estimates peg the postgraduate Masters of Business Administration (MBA) industry at 3,500 B-schools, 60,000 students paying average of Rs 3.5 lakh yearly. “Add about the same numbers for other post graduate one year diplomas and half this for the undergraduate BBA [Bachelor or Business Administration] and it is possible to get a rough estimate of the numbers at stake,” said Gautam Puri, MD, CareerLauncher.

What could be the reason for such a big drop in the numbers of students seeking management education in India? Industry insiders argue that evidence points to a issue. “The closure instances has to do with the fact that there is no quality control — the placements are not commensurate with fees being charged, the faculty is not good enough, there is no infrastructure,” said Sandeep Aneja, founder and managing director of Kaizen Private Equity, an education-focused private equity fund.

Quality is an issue, given especially that it does not take much to launch a B-school in India. Management education in India is regulated by the All India Council for Technical Education (AICTE). However, most private management schools get themselves affiliated to university MBA programmes from where they get their content.

AICTE has norms regulating the minimum student: teacher ratio, fees for courses and infrastructure, which are easy to fudge. Indeed as recently as early last March, union minister for human resources development, Kapil Sibal told a gathering at an education seminar that it is impossible to regulate such schools because of the devious ways in which schools subvert inspections. “They hire teachers and facilities for AICTE inspections. How can we possibly regulate quality in that case?” Sibal said.

There is another issue that dogs B-schools in India. “The problem is that most B-schools have no brand,” said Arup Datta, managing consultant. Placements, argue experts are based on how big a brand a given institution is, the quality of education being imparted to its students and the employability of these students.

The end-result? A fire sale where every institution that can’t survive decides to hawk itself to the highest bidder. Since there is some infrastructure, students and the license to be sold, many trusts are looking for established B-schools looking to expand presence in parts of India. This would bring a brand to available infrastructure, aiding placements. “Depending on infrastructure, location and land availability, a typical B-school would be sold for anywhere between Rs 5 and 10 crore,” he said.

Ultimately, the shutting of B-schools has ripple effects across the industry. Management professionals will form a big crux of the 347 million skilled labour gap highlighted by the National Skills Development Corporation. This would be spread across verticals like organised retail, banking and financial services, and infrastructure to name a few. More importantly, according to a study by Cygnus, a business consultancy, in 2012, there will be a requirement of about 200,000 fresh MBA in various sectors. The top 50 B-schools in India provide only 25,000 fresh MBAs.

Also affected also by the churn is the fringe element of coaching industry, which is estimated to be about 30 per cent of the Rs 10,000 Indian coaching industry. IMS Coaching, for example, with presence across 75 towns has adopted the franchisee model and has decided to reduce investment in infrastructure and become a solutions and backend help provider.

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