Growing pains as India rushes into business education

In 1961, India began to establish its network of prestigious state-run business schools – the respected Indian Institutes of Management (IIMs) – with the aim of creating an elite cadre of managers, versed in the latest management thinking, to help run its socialist-orientated economy.

But with the economy then still dominated by state enterprises – and developing only at the so-called “Hindu rate of growth” of roughly 2 per cent a year – demand for business graduates was limited, and many IIM diploma- holders ended up going abroad to seek job opportunities that were unavailable at home.

Today, with India growing at a blistering 8 per cent a year, companies are hungering for business school graduates who can help them manage fast-expanding operations in sectors ranging from banking and retail to real estate. Young Indians, too see business education as a passport to opportunity, and are clamouring to enter business schools.

But India’s state business schools have failed to keep pace with the rapid growth in demand. Although the IIM system has expanded from four campuses in the mid-1980s to nine fully fledged campuses today, demand from potential students still far outstrips the available places. In 2009, a total of 242,000 applicants across India vied for just 1,800 admission slots into the system.

Into this gap has stepped a wide array of private players – some spurred by the drive to create high-quality management talent and foster cutting-edge research, to propel India’s economy forward. Others are attracted by the money-making opportunities in a business education market now estimated at Rs30bn ($645m), and growing at roughly 12-13 per cent a year.

Annually, these institutes churn out around 100,000 graduates, whose knowledge and qualifications range from world class to so poor that they can’t distinguish between gross or net profits, or read a profit and loss statement.

“If you look at the business management school scenario, 80-90 per cent of education is through private schools. Of that, just 5-10 per cent are delivering quality education,” says Shobha Mishra Ghosh, director of the higher education department at the Federation of Indian Chambers of Commerce and Industry (Ficci), a leading business group. “The bulk of these institutions are not actually matching up to quality requirements.”

Anjan Das, an expert in higher education at the Ficci, agrees: “The number of people coming out of business education is certainly high, but the question is whether we are producing enough high-quality people.”

Part of the problem is that India’s business education sector is so highly regulated – in theory – that it has become almost totally unregulated in practice. The syllabus for a state-recognised MBA course is dictated in micro scopic detail by the official All India Council for Technical Education. This body also prescribes that state-recognised programmes must charge “bargain basement” fees, and must set aside a number of places for students from India’s lower-caste groups.

As a result, many serious business schools have opted not to seek government accreditation, as this would restrict their ability to teach the latest curriculum and pedagogic methods, undercut their financial viability, and prevent them from making purely merit-based admission decisions. Instead, these institutions offer diplomas or certificates that are seen as MBA equivalents.

“If the industry recognises that the students being trained in your institutions are good, you can probably do without a certification,” says Ghosh.

At the pinnacle of India’s high-quality private institutions schools is the Indian School of Business (ISB). It was set up in the southern city of Hyderabad in 2001 by top Indian corporate and academic minds, among them Rajat Gupta, former managing director of McKinsey & Company (worldwide), who had lived and worked in the west, but felt strongly that India needed to have its own world-class business school.

The ISB’s curriculum was developed with Wharton and the Kellogg School of Business. Both institutions, along with the London Business School, regularly send faculty members to India, and collaborate with the ISB on research. The school, now building a second campus on a 70-acre site in the northern state of Punjab, was ranked 12th in the 2010 Financial Times list of global MBAs – the only Indian institution to appear.

Many well-respected private Indian universities have also set up solid business schools. Mumbai’s SP Jain Institute of Management & Research (eighth in Business India magazine’s 2009 ranking of business education) grew out of Bombay University, but disaffiliated itself to ensure its own academic freedom. Others, such as the Manipal Institute of Management in Karnataka, or Symbiosis in Pune, offer government-recognised MBAs.

At the same time, another class of business school – including those that are little more than profit-orientated degree factories – is exploiting India’s regulatory ambiguity to set up institutes offering diplomas, or other certificates, while not doing much to prepare students for high-level jobs. The state has little leverage over these businesses, which usually meet basic physical criteria for operating vocational training, but do not even purport to offer recognised degree courses.

Often, students do not realise the poor quality of their chosen programme until far too late. “Demand is so high for management degrees that most of these institutions are full,” says Ghosh. “Most of the graduates passing out of these places take up jobs that are low paying, and for which you don’t need a management graduate.”

India has no independent accreditation agency for its business schools either, though it has two government-affiliated accreditation bodies. But accreditation is not mandatory for business education programmes, and business groups say the accreditation organisations are so overstretched, and the accreditation process so bureaucratic, that many institutions do not bother.

India’s government is now considering legislation that would make accreditation mandatory for business programmes and establish a professional body to carry out the evaluations.

“To date, the approval process has been very input focused – you need so many classes and so many computers, but the outcome was never challenged,” says Ghosh. “What we are saying is: you give them the outcomes. If an institution is not performing, give it a time period to rectify that. If the institution still fails to perform, close it down.”

Meanwhile, many foreign universities are also interested in entering India’s business education market, but are currently barred under Indian law. While the country is debating whether to allow foreign universities to set up and operate degree courses, many top global business schools are focusing on executive education, offering non-degree courses to experienced executives.

Harvard Business School, for example, set up its India Research Center in Mumbai four years ago to develop Indian case studies and offer several executive education programmes, including its five-day course called Building a Global Enterprise in India (which carries a price tag of Rs218,300).

In the meantime, as India struggles to regulate for its burgeoning private sector business education, New Delhi is gradually expanding the country’s IIM network. This year, two more campuses have opened, and there are plans for several more in the next few years.

That should add to the pool of trained talent, or so industry groups hope. “It is a great move to expand the number of schools, but we need to worry about how better faculties can be introduced to these institutions, so they can churn out better human resources,” said Das, of the Federation of Indian Chambers of Commerce and Industry. “We also need to look at how other institutions have set their basic minimum standards, to ensure quality.”