The Hindu Business Line : IIM imbroglio — A social cost-benefit perspective

Can the government's move to involve itself in the management of the IIMs be construed as an indicator of `political risk'? Would such involvement enhance the benefits flowing to society?

A SPANNER has been thrown in the smooth functioning of the premier B-schools of the country. Accusing the IIMs of being `elitist', the previous NDA Government had slashed the annual fee to about one-third of the prevailing level.

This move, according to the government, was to pave the way for even the most under-privilegedto step into the hallowed portals of these institutions. Never mind if for such a person a decent primary education is still out of reach. The government's rationale was that the fee cut would benefit `society' .

The proposed fee cut per se is not the issue. It is an economic decision that is left to the IIMs and the government. The bone of contention is the manner in which it was handled and its repercussions .

In any large and visible project the world over, theories backed by empirical evidence have shown that `political risk' is highest when the `social benefits' of the project outweigh `social costs'. The IIMs have, over the years, built a near-invincible brand with visible benefits to society.

A reason for "government intervention" is "market failure," say economists. There is government intervention here, but where or what is the market failure? The IIMs are success stories, and there is no question of `market failure'

Therefore, can the previous government's move to involve itself in the management of the IIMs, be construed as an indicator of `political risk'? Or would such involvement enhance the benefits flowing to society?

A useful approach adopted by multilateral institutions for computing the overall impact of a project on society is to sum the net estimated impact on each of the individual groups affected by the project. In practice, the analysis focusses on the stakeholder groups where the impact is expected to be the greatest ("An economic framework for assessing development impact" — Ben Esty and others, 2002.)

Who, then, constitute the stakeholder groups in respect of management education? What will they gain or lose due to the present imbroglio? A qualitative description of the issues is being attempted to highlight the possible net gains or losses of each stakeholder group, since quantification would entail a plethora of assumptions, whose proximity to reality cannot be readily verified.

The stakeholders of the IIMs are the alumni, the faculty (which includes the director), the students (both present and aspiring) and their parents, the Board of Governors (including the chairman) and the State and Central governments, and hence, society.

The alumni

At a personal level, the alumni have gained immensely from the `IIM' brand. At the national level, their skills have contributed profits to the corporate world. These have translated into taxes, which have, in turn, enriched the government's coffers and society.

The alumni have embellished government departments and public sector undertakings and, thus, contributed directly to the government's earnings. They have embarked on highly successful entrepreneurial ventures in India and abroad.

While the former have helped swell government revenues, the latter have given the country a place of pride on the globe. Alumni abroad are involved in setting up educational institutions and community development initiatives in India, the benefit from which is also derived by the government.

The inflows by way of deposits and investments contribute directly to the country's economic health. Thus, the government too has gained enormously from this stakeholder group.

Student community and their parents

The students, or the parents, who have to pay the `high' fees, have never complained. They are willing to pay for quality, knowing only too well that the payback would be swift and scintillating. And it is well known that the IIMs are meritocracies that have never discriminated on grounds of financial background. This stakeholder group, therefore, is a potential gainer.

The cost to the government would be the periodic infrastructure upgradations and the grants, which would be more than offset by the gains from better industry performance when the students join the `alumni' band.

Faculty

Erudite, competent and respected in national and international circles, many have spurned ever-available greener pastures to be with the growth of the institutes. The directors of the IIMs are also categorised as `faculty'. Their monetary and non-monetary gains, the latter by way of stimulating intellectual experience and industry respect, will have to be offset with the opportunities they have willingly foregone. But the government has clearly gained from the faculty staying within the country since they have contributed directly to the IIMs' brand and consulting income. There has, therefore, been a net benefit from the IIMs to the government (and, hence, society) so far. The fallouts of continuing the present imbroglio could, however, alter the situation.

The alumni group is quick take up the cudgels against the reputation risk to alma mater through courts and various forums, but feel disillusioned at the sovereign interference.

This large and powerful group across the globe is unable to comprehend the government's insinuating belligerence or the mixed responses of the six IIMs. The wound may take time to heal, which might manifest as reduced involvement in and, hence, reduced gains for society.

The fee-cut war may fuel a perception of quality or image loss for the IIMs, and turn good students away. Countries such as Australia and the UK are wooing Indian students. B-schools such as the ISB and GLIM have been set up with the backing of Indian corporates and international faculty. The IIM-A was recently quoted as saying that its plans to catapult the Institute into the top 20 in global ranking had to be shelved due to the present tussle. The plan to get international students into the IIM-A was put on the back-burner for the same reason. There is a clear loss of revenue here for the government and society.

Most of the faculty would probably not enjoy working for the IIMs if the academic ambience were interfered with. It is universally accepted that good faculty in schools of higher learning are hard to come by. Losing reputed faculty would directly impact the perception of quality and image of the IIMs, resulting in a substantial social cost.

A fee cut and increased student intakes to offset it are financial decisions. But more students at the IIMs would demand more infrastructure. Building this would take time and the government would face actual costs on two fronts — releasing the grants due to the IIMs to compensate for the loss in revenue, and financing infrastructure development. There is a net financial and social cost in this case.

Are the Board of Governors of the IIMs and the Chairman of the Board, stakeholders? The people in those positions may or may not have long-term involvement, but their actions and decisions will impact the net gain or loss to society

If the impasse continues, some of the qualitative descriptions of social and actual costs could well become a reality. The benefits that the government wants to garner through its intervention might then become illusory

If the present political risk is not mitigated in a hurry, society may have to pay for it — and heavily.

(The author is an alumnus of the IIM-A and a visiting faculty at IIMs. The views are personal. She can be reached at padmalathasuresh@yahoo.com)