Tuesday, September 11, 2012

Slowdown hits classrooms: Indian B-schools learn it the hard way, 140 B-schools to close

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 %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. “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 %of graduates from Indian business schools — excluding those from the top 20 schools — get a job straight after completing their course, compared with 41% in 2008.

Aditya Dighe took out Rs. 330,000 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 Rs. 10,000. "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.

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

Fees at the Indian Institute of Management-Ahmedabad (IIM-A) are Rs. 1.5 million for the two-year MBA programme. ISB, an autonomous college associated with international schools like Kellogg, Wharton and London Business School, charges Rs. 2.2 million. Online job portal MyHiringClub.com found the average starting salary for graduates of India's top B-schools was about $32,400, about Rs. 1.8 million, 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 after a three-month search yielded little else. Thadani who took a Rs. 300,000-loan to get her degree earns only about Rs. 200,000 a year. "If I had known earlier I would have never done my MBA," she said.

Source: The Financial Express, September 11, 2012

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