W(h)ither IITs?


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THE higher education debate in India is centred on two issues these days: (a) Is higher education a non-merit good deserving little or no subsidy as some finance experts make it out to be? That is, should higher education be a democratic right open to all, or should it be confined to a few? (b) If higher education is to be restricted to a few, should it be confined to those who are competent, or should it be the preserve of the politically privileged, or should it be purchasable by the rich?

The origins of the debate go back to the end of World War II. Till that time, university education was unashamedly elitist. World over, it was a preserve of the upper class. After the war, the US government was faced with the task of rehabilitating over a million demobilised soldiers. It was concerned about the need to make up for the numbers lost to education during the war years when virtually all youngsters were forced to fight. It also felt a moral obligation to compensate those who had served in the war. So, the US government enacted a Bill of Veteran’s Rights giving returning soldiers access to education on attractive terms.

As a consequence, millions who normally would never have thought of attending college, found that they could now afford to do so. Thus, college education was transformed from a privilege for the elite to a democratic right for all. The United States could well afford to do so. It was by far the richest nation in the world and controlled nearly a third of world trade. It was also paranoid about the success of the Soviet Union in space and in nuclear technology. As a counter to communism, it was assiduously propagating democratic freedom everywhere. Thus, it had the resources; it had a deeply felt psychological need and a political compulsion to throw open tertiary education.

As the US was the pacesetter for the rest of the world, most countries followed suit liberalising entry to universities. That trend was reinforced in the US when the Cold War turned into a hot one in Vietnam, and university campuses caught fire with students on the rampage. The government was forced to yield on many counts. In particular, it was forced to repay its debt to Blacks who had borne a disproportionate share of the fighting in the Vietnam War. Affirmative action policies became the rage; that democratised education still more.



In India, higher education could not become a democratic right on the same scale as in the US for the simple reason that few children completed school. Even then, higher education received considerable state patronage. The first Indian Institute of Technology was established at Kharagpur in 1950 on the basis of the Sarcar Committee Report. That report propounded two basic principles: one, that education should be of international standard recognising that costs would be at international levels; two, that the costs should be shared equally between the government, the student and the institution.

The Sarcar Committee estimated the cost of education in the Imperial College, London at Rs 1480 and at the Massachusetts Institute of Technology, Boston at Rs 1560. It, therefore, took the view that a cost of Rs 1500 per student per year would be reasonable, and hence fixed the student fee at Rs 500 per year. As the IIT would not be in a position to generate funds of its own immediately, the committee recommended that government should, as an interim measure, meet the entire balance of costs incurred. It did not specify how long that interregnum should be, nor did it suggest in what manner, and how fast, state support should be scaled down to suggested levels.



Within the government, this idea of a three-way share was never taken seriously. The national mood was unabashedly socialist. Higher education was universally believed to be a social good, both because it was an instrument of radical social transformation, and a vehicle for economic progress. In a euphoric mood, the government splurged money on many other schemes and shied away from the unpopular chore of imposing user charges. Profit became a dirty word. According to Jawaharlal Nehru, even commercial enterprises were not bound to generate profits. That led to a shortage of money.

C.D. Deshmukh, the able finance minister who piloted the first five year plan, found a solution by creating a budget deficit. While Deshmukh kept deficits at prudent levels, his successors were not as careful. Deficits became an addiction; money printed at the Nasik Press tasted sweeter than that collected through taxes. Inevitably, inflation raged, and the student fees mentioned in the Sarcar Committee dwindled to a fiftieth of the original figure. Conveniently, the IITs (by this time there were five) forgot their responsibility to earn a third of the costs. Thus, virtually the entire cost of running the institutions came to be borne by the government. It was not only in the case of the IITs but in every other sphere, the government took upon itself the burden of meeting costs far beyond its capacity to pay. The result was inevitable; by the year 1990, the government became virtually bankrupt.



Meanwhile, the world scene too had undergone a sea change. The Soviet Union had collapsed, and the US no longer faced a credible threat from any formidable enemy. Communism was disgraced and capitalism was triumphant. Money became the measure for each and everything. The stage was set for higher education policy to flip back. There was a backlash against affirmative action. Experts in the US measured the cost-benefit of higher education and declared it to be a ‘non-merit good’!

Around this time, a new fashion in professional education came to the fore in India. In the first 30 years of Independence, it was tacitly accepted that higher education would be provided by government institutions only. There were a few exceptions like the Birla Institute of Technology and Science in Pilani, the Birla Institute of Technology, Ranchi and the Manipal Institute of Technology. The first two were largely state funded, and in many ways not very different from state-run colleges. Manipal was entirely different. It eschewed altogether state patronage; it catered largely to well-to-do upper caste students who were denied admission to professional studies by the government. In the process, it not only managed to sustain itself financially but also generated enough surpluses to expand rapidly. That came to the attention of other entrepreneurs, some devoted to education and some in search of a fast buck. As a result, a plethora of ‘capitation fee’ colleges sprouted all over South India. In different forms, this process continues and is slowly spreading to the northern states as well.

Faced with financial collapse, hard-pressed policy-makers looked for a way out of the morass into which they themselves had sunk the government. They felt that if only government colleges could collect fees the way private colleges were doing, they could free themselves from the responsibility of maintaining them. However, before they could do so, a moral justification had to be found. That appeared when American pundits declared higher education to be a non-merit good. For our financial pundits this was a godsend. They too started advocating that higher education should pay for itself – a 180 degree reversal from the stand taken by them not long ago.



Basically, the argument that higher education is a non-merit good proceeds as follows: College education enables a student to get better paid jobs, more prestigious jobs and more secure jobs too. Therefore, the college graduate earns a private benefit from higher education. Hence, it is not fair to burden the taxpayer with the cost of such education. So, higher education does not merit a subsidy, at any rate not much subsidy. In case a particular student does not have the means to pay, loans may be arranged so that the burden still stays with the student and is not passed onto the taxpayer.

Stated in this form, the argument appears logical. However, this is only one side of the story. Graduates may earn a lot, but they may contribute a lot more to the economy and to society. So, it is important to take note of both sides of the ledger.

For example, a scientist working at the Vikram Sarabhai Space Centre may earn ten times the national average wage. That is undoubtedly an enormous private benefit. At the same time, if poor but capable students are prevented from studying, and therefore, less able persons alone are available for space research, who would suffer more – the individual or the economy at large? It is, of course, possible that the person may not opt for such specialised work, may sell soap instead (to earn even more), migrate abroad, or become a wastrel. Unfortunately, we do not know before hand who will do what. In any case, increasing the cost of acquiring higher education will inevitably increase the probability of preventing capable youngsters from benefiting society by their training, only because they are too poor to study.

Loan scholarships have been suggested as a remedy. In some cases, they may indeed solve the problem. For instance, it can be safely assumed that all graduates of Indian Institutes of Management will secure high paid employment, large enough to repay the needed loan with interest. There is no such guarantee for most colleges. Many graduates eke out a bare living and quite a few may not find employment. Therefore, few banks would risk lending to such students. Even if they do, they will feel constrained to cover the risk through higher interest.



The financial world being what it is, a rich student studying in IIM can get a loan more easily, and at lower rates of interest too, than a needy student struggling in a less reputed institution. In truth, loans are merely a theoretical possibility for most aspirants to college education. In the case of IITs, the risk is not high but the cost is. Typically, undergraduate education in an IIT costs Rs 400,000. The repayment of such a loan will cost over Rs 8000 per month. That is by no means a rosy prospect for any aspirant to the IIT and will certainly deter the poor.

These figures are high because IIT education is expensive. However, the recurring cost in a typical engineering college is, on average, barely Rs 9-10,000 per year. In an IIT, it is ten times as much. So, apparently, there is much scope to reduce the cost of IIT education. Actually, IIT costs are high because their standards are high. In the US, every year, about a hundred young scientists are selected for what are known as the President’s Young Scientists’ Award. Year after year, around 10% of them have gone to IIT graduates, a disproportionately large share even after taking into account the large number of IIT graduates who migrate to the US. Recently, the prestigious American journal, Business Week had a cover page story about the extraordinary success of IIT graduates in American boardrooms where several of them have become chief executives.

It is also a known fact that quite a few IIT graduates have done well as entrepreneurs; some of them are self-made near-billionaires. Considering the minuscule size of any IIT, with enrolment no more than that of a typical college, it all adds up to an incomparable record of achievement. There is not one educational institution (except the Indian Institute of Science which is even better endowed than IITs!) that can compare with the academic reputation of the IITs. As it is, the cost of education in an IIT is less than a tenth of what it is in developed countries – although when the first IIT was established, the costs were estimated to be comparable. The cost of education in engineering colleges in India is low not because they are that much more efficient but because they are sub-standard. So, the question is: Should India have at least a few world-class institutions even if they cost much more, or should we let IITs decline to the level of other engineering colleges?



In this connection, it is worth having a look at the accompanying table, which provides a revealing picture of the fee and subsidy structure in the United States. In the table, institutions are classified in two ways: (a) private or public and (b) in ten deciles according to subsidy provided. As a matter of interest, on an average, the subsidy provided to students is virtually the same in both private and public institutions. The most expensive institutions (these are to be found in the private sector) provide subsidies three times the average and charge fees even lower than those at the bottom decile whose expenditure per student is barely a quarter as much. Hence, top institutions, in spite of the prestige they command and the enormous expenditure they incur, keep their fees relatively low, keep them less than a fifth of the costs incurred. The fees in public colleges are lower but their expenditures too are significantly less. No wonder, the private sector has most of the reputed colleges. These figures are for colleges across the board and not confined to engineering institutions only. Nevertheless, there is much food for thought here. One, prestige and quality do not come cheap. Two, students will pay some premium for quality but not much.

The administration of Harvard University is typical of the way private universities attract and cater to bright students. It keeps admissions and fees separate. Admissions are made according on the basis of a complex set of criteria for merit, and then the fees to be charged are decided on the basis of ability to pay. To the extent possible, care is taken that no meritorious student is discouraged from joining merely because of the expense involved. Harvard offers large subsidies to bright students, even more than what public institutions offer. It also pays faculty very well. It can afford to do all these because it has accumulated huge endowments. Can our IITs do the same?

All these years, the IITs have been run like any other department of the government. Whatever they earned was appropriated into the Consolidated Fund of India, and a budget was offered to IITs on the basis of what the government thought fit. The fact that the government used to be quite generous is beside the point. In effect, IITs were forced to pay 100% income tax on whatever they earned. That took away all incentive to earn. Three years ago, when the government found that it could no longer cope with the cost of maintaining the IITs, it offered a package in which the government subsidy was effectively frozen, but the IITs were permitted to retain whatever they earned. The government also promised to provide a matching grant on any profit IITs may make on any contracts they executed.

That unleashed much suppressed energy. The IITs started collecting substantial (by Indian standards) endowments from industries and alumni, and increased their commercial operations. Typically, these days the IITs earn some Rs 8-10 crore a year against a total expenditure of about Rs 40 crore, about 20-25% of total expenses. For comparison, it may be noted that private universities in the US earn nearly 80% of their expenditure. So, the IITs have much farther to go before they can compare with American private universities. Unfortunately, IITs face more difficult obstacles.



The cost of education in a prestigious private university in the US is around $30,000 – roughly the same as the per capita income in that country. Even after paring costs down to the bone, the cost of education in an IIT is around Rs 100,000 a year, less than 10% of American costs but seven times the per capita income of the country. An American student pays an average fee of about $6000, about 20% of per capita income. IIT fees are already twice the per capita income. So, relative to the paying capacity of an Indian, IIT costs are ten times higher than in the US. So, relatively speaking, IITs need much larger support than do US universities.

Unfortunately, Indian industry is not particularly interested in technology development; it has little use for the kind of expertise the IITs possess. What little it asks for rarely challenges the talents of IIT faculty. Hence, projects offered by Indian industry do not enrich IIT faculty professionally the way American industrial contracts do American faculty. Indian industrial projects are few in numbers, pay little and are professionally not rewarding. Thus, there are fears that IITs are taking serious academic risks by seeking support from Indian business. At the same time, it must be admitted that even the little IITs have attracted has mostly come from abroad, very little from Indian business. In any case, to this day, the burden remains largely on the government.



The cost of quality education is heavy and the government is poor. Basically, the government is in a sorry predicament because it has spread itself thin. There are 8000 colleges in the country (over 500 of them are in engineering) and a new college is started every other day. Most colleges in India are heavily subsidised, proportionately even more than the IITs. If the government restricts itself to educating the numbers actually needed by the economy, substantial funds will be released and the financial burden will become manageable. Suppose the number of graduates of the previous year who secured gainful employment is taken as a guide to limit the number of students admitted to any course. Many wasteful and unnecessary courses will then fade away, and so will the cost of higher education. To enforce compliance, a rule may be introduced to the effect that every graduate will be guaranteed a job or fees will be refunded (and the time lost too will be suitably compensated).

Then, higher education will become selective and cease to be a democratic right. In India, as a remedy for centuries of inequity, the government has decided that higher education (even in private colleges) should be largely reserved for backward caste students. Politically, the pressure from backward castes is increasing for even more reservation. In this case, if the numbers admitted to colleges is limited to the number supported by the economy (and affordable by the government), increasing numbers of meritorious students from upper castes will be denied higher education. On the other hand, if colleges are forced to go private and self supporting, the rich will benefit and the poor will be left out. Alternately, costs may be pared down. Whichever way, quality will suffer. However, do we need quality? Some of our politicians have vociferously spoken against quality in higher education for fear that it will hurt the backward classes. If it is decided to sacrifice quality, the problem may be resolved without much difficulty. On the other hand, if the country wants at least a few institutions like IITs to be internationally competitive, the issue becomes complex. Either way, it is a matter of political choice.



In this situation, whither IITs? Or, should that be wither IITs? An anecdote about Birbal is worth recalling. It is said that Emperor Akbar once saw a tribal woman deliver her baby in the middle of the forest without any help and resume her way back home carrying a large bundle of firewood. Highly impressed, he ordered that henceforth, women in his harem would not get any medical aid to deliver babies. The women, much alarmed, appealed to Birbal for help. A couple of weeks later, when Akbar was strolling around in the garden with Birbal, he was shocked to see his precious rose plants all withered. Naturally, he was furious with the gardener. Birbal then intervened saying that forests have mighty trees though no one ever waters and nurtures them. Why then, should roses be pampered? Akbar took the hint and withdrew his order about abolishing medical attention to the women of the harem.


Costs, Prices and Subsidies in United States Colleges

(All prices in US dollars)





Net Tuition Fee

Price Cost Ratio (%)

Private colleges





Public Institutions





Decile 1





Decile 2





Decile 3





Decile 4





Decile 5





Decile 6





Decile 7





Decile 8





Decile 9





Decile 10





Source: G.C. Winston, ‘For-Profit Higher Education’, Change, January 1999, pp. 13-19.