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How to resolve the financial crisis at IITs, IIMs

By Pradipta Mukherjee & Kanika Datta
October 12, 2009 14:13 IST
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The recent controversy over faculty pay at the IITs and IIMs suggests that they need to radically reorient themselves as academic institutions, say Pradipta Mukherjee & Kanika Datta.

IIT and IIM professors insist they're grossly underpaid. HRD minister Kapil Sibal says the government has finite resources, so faculty salaries can't be raised. Both sides have a point.

But the differences can be substantially reconciled if these premier education institutes are radically re-oriented. Doing so, however, requires synchronising them more closely to the needs of corporate India, a move that would dramatically alter the dynamics of funding.

There are two issues linked to the funding of IITs and IIMs. First, as Sibal succinctly (if unwittingly) highlighted, the government continues to be the principal provider of funds for institutions that turn out elite cadres of engineers and management experts.

This means that the IITs and IIMs are essentially driven by fee income from undergraduate students, a funding pattern that is inherently loss-making anywhere in the world — even in the most commercial of technical or business schools. "You can't charge young people full fees," explains Ajit Rangnekar, dean of Indian School of Business, the Hyderabad-based B-school promoted by Wharton, Kellogg and London Business School.

At the IITs, for instance, the government pays a subsidy of about Rs 200,000 per student per year. Given that the number of IITs is being expanded from the current seven to 15,  it is easy to predict this subsidy, which will only rise, will be difficult to sustain.

For most comparable institutions anywhere in the world, fee income forms a small part of the funding pattern (fees from executive education programmes in B-schools do help but only partly). For the most part, it's non-fee income that drives the funding. Or, as Rangnekar puts it, "Donations from private sources become a very, very important form of funding."

The notion of a greater private sector role in IITs and IIMs is a decade-old issue — since then, it has been described in more contemporary language as "public, private partnerships". Everybody from Infosys' Narayana Murthy to Rahul Bajaj has suggested a bigger role for the private sector in these institutions. This is an obvious — and proven — solution, but there are several problems in applying this model to India. 

The crux of the problem at the IIT and IIMs is that, unlike their global counterparts, private donations and endowments remain an extremely erratic source of funding. Thus, in good years, endowments may amount to Rs 100 crore, or 20 per cent of an IITs revenues. In other years, it may be zero. Contrast this with, say, ISB, where donations consistently account for 20 per cent of revenues. In nationally supported US or European institutions, this form of funding could amount to 30 to 60 per cent of income. 

IIT directors themselves understand this fact of funding all too well. In a letter written last December, Professor Amit Patra, dean (AA &IR) of IIT Kharagpur, appealed to alumni to create endowments "to 'top-up' the compensation of faculty, thereby providing financial incentives and motivation for excellence in education." 

Of course, endowments or donations rarely go towards augmenting faculty salaries directly, and chaired professorships are few and far between. In India, endowments are usually for specific projects, like building a hostel or improving seminar facilities and so on.

If endowments cross a particular amount, the alumnus or the body donating it gets his or her name for the donation. For instance, the Vinod Gupta School of Management (VGSOM) at IIT Kharagpur was established in 1993 — it was the first management school to be set up within the IIT system. Gupta, founder and chairman of InfoUSA, Inc, donated more than $2 million to set up VGSOM which received a matching grant from the government.

Where endowments do augment faculty remuneration is through sponsored research projects or consultancy work. It is notable that IIM professors are a less disgruntled bunch because they augment remuneration with private consultancy work.

But the All India IIT Faculty Federation (AIIITFF), which has been at the forefront of the protests for higher salaries, complains that a significant part of such earnings goes back to the government as income tax or can be used by professors only for certain permissible academic purposes.

For the most part, however, private endowments at the IITs and IIMs appear to be driven by grateful and hard-working alumni, working individually or through associations. Alumni donations at IITs sometimes account for 70 to 80 per cent of an institute's total endowments for that year. In some years, the proportion can be as high as 95 per cent.

Income from sponsored corporate research has increased significantly - last fiscal, the IITs recorded a 30 per cent jump in this activity. Big global names like Shell, General Motors, Texas Instruments as well as Indian outfits like ISRO, DRDO and telecom company BSNL have come to campus for R&D projects.

But the momentum is still neither strong enough to provide a stable source of income nor is it a game-changer as far as institutional funding is concerned. Foreign universities, like the ones in US, follow a completely different and more organised culture as far as endowments are concerned.

They have separate departments to monitor endowments, their implementation and accountability. Private donations can also form part of generic corpuses of funds that are invested in financial instruments including equity (several big B-schools suffered on account of the stock market crash in the US, as a result.)

This is not the only point of difference. The nature of the PPP models differ significantly too. For instance, at Harvard Business School (HBS), almost half the endowment has been earmarked by the donors to support professorships and faculty research, and 25 per cent is in funds designated to provide income for MBA and doctoral fellowships. Another 17 per cent is restricted to existing strategic initiatives, building operations, and other ongoing operations.

The contrasting nature of endowment funding abroad is a pointer to the weakness in the Indian system. For the most part, the IITs and IIMs have stuck to their original mandate of creating a highly qualified technical and managerial manpower base in India.

As a result, they continue to admit the cream of India's high school system through highly competitive entrance exam and turn out highly qualified graduates who break new records in starting salaries each year.

The question, though, is whether fulfilling this function alone is sufficient to meet the requirements of Indian corporations that now compete on a global scale.

As one alumnus blogged ahead of an alumni bash at IIT Madras last year, "Numerous luminaries of the day routinely came down for a visit and told us how gifted we were. But they left me wondering whether our education enabled us to excel in the world beyond our campus walls. We were yet to see the benefits of a resurgent Indian economy and I was aware that competing with the global industry would result in a different set of challenges."

As both these ex-students suggest, the IITs and IIMs urgently need to reinvent themselves towards specialised research and R&D of the type that their overseas counterparts regularly do (some of it of Nobel Prize-winning standards).

As ISB's Rangnekar, an alumnus of IIT Bombay, points out, "We have to ask, what have we done to contribute to the knowledge pool? The focus should be on high-quality research."

On that parameter, neither the IITs nor IIMs really shine. In 2008, the Times Higher Education Supplement of World University rankings ranked IIT-Delhi and IIT-Bombay 157th and 174th  best overall universities respectively.

A stronger focus on R&D would not only make these premier institutions more relevant in today's economic mileau; it would also help attract more private funding, especially from firms. This will create a virtuous circle of research and resource-creation that will make face-offs between faculty and the government a thing of the past. 

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Pradipta Mukherjee & Kanika Datta
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