India's business schools get tough lesson in supply and demand

A boom in India's management education sector that saw the number of business schools triple to almost 4,000 over the last five years has ended as students find expensive courses are no guarantee of a well-paid job in a slowing economy.

India's seemingly unstoppable economic rise, an aspiring middle class' desire to stand out in a competitive job market, and a lucrative opportunity for investors fuelled a bubble in business education that is now starting to deflate.

About 140 schools offering Master of Business Administration (MBA) courses are expected to close this year, as 35 percent of their places were vacant in 2011-12, up from 15-20 percent in 2006-07, a report by ratings agency Crisil found.

"The boom which was there has gone," said Anshul Sharma, chairman of Asma Institute of Management, which he started in 2004 in Pune, about 150 km (95 miles) from Mumbai.

"Those who entered this industry with a motive to make money are leaving because there is not much money left. Every college is working to sustain itself," said Sharma.

There was a near four-fold rise to more than 352,000 MBA course spots in the five years to March 2012.

But the allure of so-called B-schools outside the top tier is fading as the economy grows at its slowest in nine years, with the financial sector especially sluggish, and amid questions about the quality of some schools.

Only 29 percent of graduates from Indian business schools - excluding those from the top 20 schools - get a job straight after completing their course, compared with 41 percent in 2008.

Aditya Dighe took out a 330,000 rupee loan to fund his MBA from a school in India's financial hub of Mumbai. Four months and 18 job interviews after graduating, the 26-year-old is still looking for a job that will pay enough to cover his expenses and monthly loan instalments of 10,000 rupees.

"The B-schools have promoted their brand only on placements and by boasting about salary packages. The course is theoretical and you don't learn the skills corporates want," he said.


BIG BUSINESS STRUGGLES

Private education is big business in India. KPMG pegs the industry at nearly $50 billion and projects it to reach $115 billion by 2018. But growth rates are not uniform across the primary, secondary and tertiary education sectors.

"A third of all management colleges are struggling," said Narayanan Ramaswamy, a partner at KPMG.

At the peak before the global financial crisis, new business schools were cropping up almost every day, some in remote towns where even quality secondary education is hard to come by.

There are two strands of MBA courses.

MBA degrees are offered by schools overseen by the All-India Council for Technical Education (AICTE), the regulatory body for higher education. These schools must be affiliated to a university, have a maximum of 120 students and fees are capped by state governments.

A second stream allows colleges to offer diplomas that are not accredited by AICTE. There are no standardised curriculums, class sizes are bigger and fees can be higher. An institution can offer both accredited and non-accredited MBA courses.

In a city such as Pune, something of an education hub, it costs about 40-50 million rupees over two years to set up a management school, which can be as basic as a modest building with classrooms, a small library and a computer room.

When demand was outrunning supply, students were willing to pay high fees for the autonomous courses, that tend to be more industry-relevant, in order to get a leg up in the job market.

"People who had some land and money saw a great investment opportunity in the demand-supply gap and there was a rush to open schools," said Dhiraj Mathur, executive director at PricewaterhouseCoopers.

"They were not thinking about the faculty, location, employability and brand name. They thought setting up a school would take care of the rest."

Now, some new institutions are discontinuing their autonomous courses despite often better quality education, because with no guarantee of a job, students are opting for cheaper, AICTE-approved courses.

SPOILING THE SYSTEM

Schools with little or no track record fill seats by paying existing students up to 40,000 rupees for referring other students, Asma's Sharma said, whereas some hire agents, paying them upwards of 50,000 rupees for every student they get.

Sharma cannot afford to pay hefty commissions and is struggling to fill the 120 seats at his institute. Last year he enrolled only 45 students, and needs about 80 to break even.

"Today, students do not ask what and how they will be taught. They only ask about placements and salary packages, and what discounts we offer on the fees," he added.

"This is spoiling the education system but if we don't try and accommodate them we will not be able to survive."

Elite institutes still attract students despite high fees as they have strong reputations, and their graduates are favoured by recruiters.

As a result, competition is fierce for the relatively few places in the state-run Indian Institute of Management (IIM) in Ahmedabad, and the Indian School of Business (ISB), started by two former McKinsey employees in Hyderabad in central India.

Fees at IIM in Ahmedabad are 1.55 million rupees for the two-year MBA programme. ISB, an autonomous college associated with international schools like Kellogg, Wharton and London Business School, charges 2.2 million rupees.

Online job portal MyHiringClub.com found the average starting salary for graduates of India's top B-schools was about$32,400, about 1.8 million rupees, more than four times the average of $7,550 for other MBA graduates.

Lavina Thadani, a 23-year-old MBA graduate from Pune, settled for a low-paying job in the capital markets team at a media house after a three-month search yielded little else.

"I expected more after spending so much on my MBA," said Thadani who took a 300,000-rupee loan to get her degree but earns only about 200,000 rupees a year. "If I had known earlier I would have never done my MBA," she said.


Copyright Thomson Reuters 2012