Capturing the "Entrance Exam Economy" and Firangi education economy

There is too much negativity in speech, though and action in our country today. We need to find ways to convert our negativity into a form of fuel for positive change. So the more negativity in society,  the more opportunity for change.

In this blog, we explore ways to improve the change some aspects of the education system using the negativity in it.

The Entrance Exam Economy (EEE) and the Firangi education economy (FEE) have reached  very large proportions.

A recent article in a business magazine puts the total number of aspirants preparing for the IIT  entrance exams at Kota at 1,00,000. (See this link). The total spending  by these students is estimated at Rs 1,700 crores per year. It is safe to assume that nationally the number of aspirants preparing for this exam  and the spend are multiples of this amounts. Surely, on a national basis, at least another Rs 8000 to 10,000 crores must be being spent on entrance exams to Engineering colleges. The EEE industry has clearly established the price that people are willing to pay for good education. The spending by students is estimated to be in the region of Rs 2-3 lakhs over two years of preparation at Kota.

The total number of seats at the IITs is 9,885 of which only 4,844 is in the open category.(see this link).  At a fees of Rs 90,000 per year for the open category and Rs  20,000 per reserved category students, the total annual revenue of all the IITs per year from undergraduate programs would be only about Rs 220 crores.

The number of   engineering seats available at  quality Institutions available for those who can afford to pay more but could get through the merit list at NITs or IITs  is very small  at about 50,0000 compared to the total number of engineering seats available estimated at 12,50,000 seats per annum  (see this link). The prospects for students from the higher quality institutes is perceived to  markedly different. Hence students and parents are willing to spend a lot of money getting into these courses. This is a symptomatic of every other sector of education where economic prospects are seen to be good namely management education and medical education. ,

The Firangi education economy ie the spending by students on going abroad for education. It is currently estimated at around USD 7.5 billion a year ie about Rs 45,000 crores (@60Rs/$)  (see this link).  While some portion of this will always remain, as some may prefer to go abroad independent of the costs, a large portion of this is due to difficulty in getting admission into good colleges in India. Also the loss of students to overseas institutions is not just a financial loss - it is also a loss of high quality human capital.  In many cases those who go abroad to study do tend to settle down there. While we may not have felt this loss in the 1960s and 1970s as we did not have a choice. Today we have a choice and hence cannot afford to loss our smart youth to other societies.

While the EEE and the FEE, in its current scale and scope, is definitely an undesirable activity for our country for reasons detailed in this blog  its presence provides a very good opportunity for the Government India to convert into a fuel for a positive change and solve  the following problems -

1. lack of supply of much larger pool of  higher quality engineers and management graduates in India  
2. high level of stress and angst that some of the brightest minds are put through by Entrance exams process
3. subsidy model of higher education where high quality higher education institutes are dependent on government funding and hence cannot expand to meet demand are expansion means more subsidy (which a Central Government with Rs 5,00,000 crore+ fiscal deficit is very reluctant to do)

In this blog post, we will explore possibility of creating a model where Institutes which cost a lot of money to put up will be self financing thereby creating a virtuous expansion mechanism where capacity will expand to meet demand for higher quality education.

As it stands the EEE and the FEE dwarf the domestic education economy in the quality education segment.  Apart from being a burden on national resources, the EEE  is undesirable as it is teaching students skills which have low value in the real world as compared to the expenses incurred in imparting these skills.  It also destroys their soul.  While the EEE is undesirable, its presence also gives one very good opportunity - that of capturing  and diverting this wasteful spending by building higher quality institutions such as  IITs and NITs and capturing this spend as fees and reducing  the  size of EEE to a more reasonable level.

We have strangled capacity addition of the colleges with the right quality due to regulations- fee limits, curbs on admissions and reservations amongst others. As a result, too much money and effort is spent on trying to enter the existing quality colleges.

What is to be done ?

Let us discuss a solution for Engineering. Other solutions will also be similar. Since existing Institutes are political hot potatoes- it would be better to create fresh solutions.

We need to create  new New Institutes  (NI) with about 50,000 seats capacity which will admit students in this ratios:

33 % for high paying seats  who will pay two times the actual costs of an IIT education.( say Rs 5 lakhs p.a)
33%  for open quota merit students who will pay fees equivalent to the real cost of IIT education
33%  for  Quotas -OBC and SC/ST  who will the real cost of the education.

These new colleges would use the same entrance exams such as IIT-JEE and give seats based  only on rank, even to those who can afford the higher fees.

The only major constraints for this initiative will be in finding good teachers for these institutes and perhaps in finding adequate land. The Government will need to find ways to attract the best talent especially from the Indian diaspora and even among Professors of other nationalities.   We also need to find creative ways in using technology, in ways like www.coursera.org or Khan Academy (See this link),  to achieve a much larger Student Faculty ratio and tide over Faculty shortages.  This will also help the institute lower the cost of education and also tide over difficulty of getting high number of faculty in a short time.

Education institutions are  relatively very pollution free activity and so these new institutions can be put in eco-sensitive zones (instead of putting polluting industries there by giving tax exemptions as is the current policy). Industrial development has followed the setting up of good education institutions, if the right environment is created. The progress of Stanford and the parallel development of Silicon Valley is an outstanding example of this. In our country, the development of engineering industry of Belgaum is an excellent example of the role a good college in the neighborhood namely NIT - Surakal in creating entrepreneurship.

We need to create high quality townships which will  have high quality amenities so that it becomes attractive for Professors from overseas locations. The NIs should also have spaces for  development of industries along side it.

We could create a  National Education fund and provide it tax free funding similar to NHAI and REC and  allow it to raise funds for creation of new institutions. This would allow access to funds at 6% per annum and this may even allow for creation of institutions at almost zero government funding.

What will this accomplish ?

• Since the Colleges will be self funding all they would require only temporary capital and no permanent subsidy or grant for yearly operation. This would make it easy to create and expand the colleges without annual financial support from the government.
• Students who are willing to pay more need not go abroad to study. This will save forex and make available a much larger talent pool in India making India an attractive destination for Foreign Direct investment.
• Students from families who can spend more may prefer to go to NI rather than spending a lot of money and slogging mindlessly for Entrance Exams with low chance of success. Once admissions become easier, students will not want to go through EEE but can use their school years to actually gather knowledge. The  spending on EEE and FEE can be converted into spending at NIs. 
• More IIT and NIT seats, which are subsidized and hence more affordable, may go more towards more economically weaker section students
• Creamy layer among reserved sections may also choose to go to NI  freeing up seats in IITs, NITs etc.
• Creation of new high technology industries around these institutes over a period time- leading to better development and revenues for the Government.

Conclusion

Our country is poor and rich at the same time. There are people who are willing to pay for quality. By not recognizing this diversity as a strength, we have kept fees at higher education institutes low even for those who could easily afford more. This low fee structure has made these institutes dependent on the Central Government for funds and incapable of expanding to meet demand.

We have thus created a  man made shortage in higher quality education and have created a EEE and FEE industry. The revenue models of the IITs, NITs, IIMs are constrained by one-size fits all approach. It  is not advisable to change the models of these institutes at this point of time, as it will become a political hot potato.

To solve these problems, we need to create New Institutes which would have high quality and cater to the classes who can pay full cost and more for high quality education.