B-School fees: Gap narrows with IIM-A benchmark

Please see IIM-Ahmedabad's response at the end of the article.

When it comes to tuition fees at business schools, it is a 'do what the leader does' mantra. The gap has narrowed this year between the bigger ones, including the Indian Institutes of Management (IIMs), and that of the market leader, IIM-Ahmedabad.

Fees for the 2015-17 batch of the flagship postgraduate programme (PGP) at IIM-A are Rs 18.5 lakh, while for IIM- Calcutta (IIM-C) it was Rs 16.3 lakh, a gap of Rs 2.2 lakh. This has narrowed to Rs 50,000, with IIM-A raising these five per cent to Rs 19.5 lakh and IIM-C doing so by 16 per cent to Rs 19 lakh for the 2016-18 batch. Similarly, IIM-Lucknow revised its fee from Rs 10.2 lakh to Rs 14 lakh and IIM- Kozhikode from Rs 13 lakh to Rs 16 lakh, thereby reducing the gap between them and IIM-A to Rs 5.5 lakh and Rs 3.5 lakh from Rs 8.3 lakh and Rs 5.5 lakh, respectively.

According to Narayanan Ramaswamy, partner at KPMG in India, it has been a tradition in management education to follow the leader in this manner. "It has been a tradition that IIM-A takes a step and others tend to follow. The only one to have taken a different path was ISB (Indian School of Business), which recognised that theirs was a one-year programme for executives and, hence, not comparable with the two-year programmes of IIMs. They went on to charge almost close to Rs 30 lakh," he says.

While B-schools have cited rising costs and inflation as reasons, some also see it as a strategic move to match IIM-A in terms of quality perception. "Price is a signal of quality. If other IIMs and top B-schools don't increase their fees, they are afraid people will feel they are offering a lesser quality than IIM-A. Hence, we see other IIMs and B-schools narrowing the gap," says Anindya Sen, professor of economics at IIM-C.

"It is just a reflection of what the market is willing to pay," says Ramaswamy. "For example, next year, if technology-based learning goes to a different level, it could mean heavy infrastructure spending at the IIMs and might drive the fees further. Even if the increase is by Rs 4-5 lakh, do you think people will not join IIMs? Currently, it is a seller's market in management education."

Seconding him is Shailesh Gandhi, dean, programmes, at IIM-A. "Probably, they (other B-schools) are benchmarking as to what the market is feeling to pay. In fact, if you look at mid-rung B-schools' fees, they would be charging more than the new IIMs," he says.

Sen credits IIM-A for reading the trend early. Over recent years, it has kept revising fees year-on-year, barring now and then.. Gandhi says in the past four years, their average (annual) fee rise has been five to six per cent. IIM-A revised the fee for PGP programmes, including the agri business one, by 6.9 per cent for the 2012-14 batch, 7.1 per cent for the 2013-15 one, zero per cent for 2014-16 and 11.4 per cent for the 2015-17 batch.

IIM-Ahmedabad clarifies:

The report implies IIM-A as a price-leader in determining fee-hikes for IIM-A programmes. IIM-A has never tried to lead, coordinate, or communicate about fees with other IIMs. In past years, IIM-A fee increases have been followed by other IIMs lowering their fees, and years in which IIM-A kept its fee unchanged have seen other IIMs raise their fees. Since most IIMs face similar cost pressures, one should not be surprised if their fee increases are positively correlated, but that is not caused by coordination on fee increases.

Second, IIM-A fee increases have tended to lag inflation rate over the past several years. Over the past five years, an arithmetic average of fee increase has been 6.2% per annum, whereas an arithmetic average of inflation increase during the same period would be 7.4%. Taking 2009 as base, even with the proposed increase, 2016-18 fee would be 10% lower in inflation-adjusted terms compared to 2009-11 fee. Thus, though in nominal terms IIM-A has increased its fee, in constant rupee terms, in fact the fee has declined, if we take a five year or a seven year horizon.

Third, focusing only on fees is not a correct way to interpret cost of education for students. Any discussion on fees, without taking into consideration scholarships, would be incomplete. IIM-A believes it has the moral responsibility and obligation to ensure that financial inability should not be an impediment to an individual offered admission in our PGP programme. Every year, the Institute distributes scholarships of Rupees Five to Seven crores, the highest aid package among all Indian management schools. This year, IIMA will offer financial aid to 29% of its student population. In addition, beginning this year, the Institute will offer exit scholarships to deserving students that go into non-traditional but socially impactful careers that involve monetary sacrifice.