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Monday, March 7, 2011

Pricing Engineering Education

Economic Times has had an excellent article on 4th March by V Raghunatahn, titled Pricing Engineering Education.

He argues that the fees approved by the state governments do not even cover faculty salaries, if the educational institutions have to follow all AICTE guidelines, and offer 6th pay commission mandated salaries. He does not show complete maths, so I thought of doing it myself.

AICTE requires a faculty to student ratio of 1:15. AICTE also requires that professor to Assoc. Professor to Assistant Professor ratio be at least 1:2:4. That is, you could have more senior persons if you want, but you cannot have all fresh graduates as teachers.

What this means is that for 105 students, there should be a minimum of one professor, two associate professors, and four assistant professors, with minimum qualifications that AICTE has specified. Given that even the worst government college is offering 6th pay commission salaries now (in most states, the few remaining states are expected to pay arrears), the private colleges, if they want to recruit faculty with similar quality as the worst government colleges, will have to pay the 6th pay commission salaries.

The minimum salary of a professor today is about Rs. 12 lakhs per annum. The minimum salary of an Associate Professor is about Rs. 10 lakhs per annum. And the minimum salary of an Assistant Professor is about Rs. 7 lakhs per annum. (I am including basic, grade pay, dearness allowance, transport allowance, HRA, and pensionary contributions, though governments also give other benefits such as LTC, Medical, Earned leave, Sabbatical, gratuity, extra opportunity for consultancy, telephone re-imbursement, school fee support for kids, and so on.)

So, for 105 students, the bare minimum salary outgo on faculty has to be 12 + 10 * 2 + 7 *4 = 60 lakhs. Considering that at least some professor (who will be Director, Dean, Heads, etc.) will be paid more, and everyone has to be given some increment every year, etc., it is reasonable to assume that at least 70 lakhs will be spent on faculty salaries alone, if all AICTE norms are followed and the salary levels are same as the worst government colleges.

Of course, in an engineering college, typically the faculty salary is about 1/3rd of the total cost, which includes salaries of technical staff, administrative staff, outsourced staff for mundane things, labs, and the basic infrastructure itself (assuming that the loans for the basic infrastructure has to be paid through tuition).

So the minimum cost of engineering education has to be around Rs. 2.0 lakhs per annum with any reasonable quality. Out of this, you can expect the promoters to do a little bit of subsidizing by way of creating an endowment, gifting some money in the beginning for land and initial buildings, etc. Over a period of time, some revenue can be generated by generating a surplus from hostels, guest house, and some commercial activities on campus. But, anyone charging you less than Rs. 1.5 lakhs is either a great philanthropist, or is reducing quality tremendously. And if someone is giving you quality of a decent NIT, the cost has to be no less than Rs. 2.5 lakhs. Some good institutes are able to charge less since the promoters have left an endowment, or have donated money to pay for the entire capital cost, or they have some other program where the regulation is weak and therefore there the surplus is very large, or they have an active alumni donation program, etc.

When state governments insist that one can only charge Rs. 40K to Rs. 70K per annum, they are essentially saying that they are not bothered about quality, and they don't care about AICTE norms. Is there any wonder that most graduates of these colleges get very low paying jobs.

I am very curious to know how do fee committees in the states come up with numbers like Rs. 40,000 per year, or even Rs. 70,000 per year as tuition of engineering colleges in their state.

The reader will obviously ask, if the cost is so high, and tuition is so low, then why is there a long queue of promoters interested in opening colleges. That is a legitimate question, and one has to see the real operations of these colleges. They depend on a large number of ad hoc teachers whom they will pay as little as Rs. 1 lakh per year. Typically, these are those poor quality undergraduates who were deemed unfit for any kind of job by industry. Also, no college maintains faculty, or any other resource to the level that AICTE expects. And when a team goes to colleges for inspection, one either brings in resources that day, or the team members knowing the real state of fee regulation ignore the shortcomings, and the whole charade continues.

Serious quality players do not want to enter the education sector, since the only way to operate in this sector is by violating guidelines, and then paying bribes to avoid being caught. They will enter only as university since the fee regulation is not as yet applicable to universities.

I wonder how this system has continued for couple of decades, when anyone could do these numbers on the back of the envelope.


Dheeraj Sanghi said...

The topic of fee fixation must be flavor of the week. Mr. Sekar Viswanathan, Vice President, VIT University has written an article titled, Let's fix the problem, not the fees in Hindu on March 5th.

Bhuvnesh said...

I even met a guy on my way to Jaipur, who couldn't clear GATE exam, but was a faculty in a college of Rajasthan Technical University.

Dheeraj Sanghi said...

@Bhuvnesh. People get what they pay for. Unfortunately, sometimes people get less than what they pay for.

Anshu Gupta said...

The big question is how much do the premier state funded education systems earn by attacting Industrial funded projects ? And why some good private instiutes can not flourish in our country by surviving from industrial projects other than mere tution fee ? Our country looks like at a cross road where cheap but good quality development of many products is needed but somehow education instiutes are missing this bandwagon.

Dheeraj Sanghi said...

@Anshu, do you have any example in the world where a significant part of the education cost comes from the surplus of industry projects. And I call significant part as ONE percent.
Even if you have an example, ok, you can go ahead and reduce tuition estimates by one percent. The maximum I have seen is industry projects contributing 3-4 percent of the total budget of the university, but then a lot of money needs to be spent on carrying out those projects, and the surplus is only a small part of it.

Jayadevan said...

Sir, nice thought…The following are some of my concerns..
1) Now, if the fee is raised to Rs 2 lakh per annum for engineering, I don't think it will be affordable to Indian middle class families.
2) Getting quality Professors and Associate professors is also a big challenge. Even the newly established IITs are not getting good Professors. (Good people are being deputed from established IITs). May be after 7-th pay, the conditions may improve..
Now AICTE permits the colleges to double their intakes by running in shifts. The number of faculty members may change by only 30%...

Dheeraj Sanghi said...

@Jayadevan, I am not an economist/ socioogist, therefore cannot agree or disagree with your comment that Rs 2 lakhs is unaffordable by even middle class in India. So let us agree with the statement.

What is the solution. One solution is to explicitly and legally allow poor quality education, which can be provided at a lower cost. This is what de facto is happening, but since we don't officially admit it, there is a lot of corruption in the system. AICTE could agree that the faculty student ratio can 1:30, that a fresh BTech can be hired as an Assistant Professor, that the amount of facilities and infrastructure that their current guidelines demand be scaled down, etc. This will legalize the current situation, and take corruption out of it.

The second solution is that someone pays the bill for quality higher education. It is unfair to expect that the bill will be paid by philanthropists. Government could provide direct subsidy to students of higher education, like the school voucher scheme that they are running on experimental basis in some parts of Delhi.

The third solution is to allow easier loans. I believe government is serious about this, and may come up with some solution soon.

Of course, one has to constantly look at various improvements that reduce cost, for example, may be we can leverage technology to reduce the need for faculty, which is the most expensive resource today.

I am sure others can come up with more and better solutions. But till someone meets the cost of quality education, we will continue to have 75% unemployability of our college graduates.

Anshu Gupta said...

I think a very sustainable model for industry funded research is the chain of Fraunhofer Insitiutes ( They have €1.65 billion as their total annual research budget . Of this sum, €1.40 billion is generated through contract research. Two thirds of the research revenue is derived from contracts with industry and from publicly financed research projects like the defense & aerospace sector. Ofcourse these institutes do not provide the undergrad courses but most of the PhD positions are filled by 3-4 year industrial contratcs. I sincerely believe that such research models can be emulated in our country.

Dheeraj Sanghi said...

@Anshu, I read the annual financial report of the Fraunhofer Institutes. The cost of doing that contract research is more than the payment they get for doing that research. They survive (and sometimes even show a surplus) because there is a minimum base funding from the government. Otherwise, they would be running into a loss every year.

I am not suggesting that contract research cannot be a profit making business. It can be, and some of our drug companies do that. But a company who is focused on contract research will not have undergraduate teaching as its core strength.

In general, one can argue that a university can have a business which is profitable and provides cross subsidy to the undergraduate teaching. But if there is such a business (contract research included) which can be so profitable that it can provide good amount of cross subsidy, then why wouldn't someone run that business as a stand alone business and make all the money rather than sharing it with undergraduate students, unless the presence of UG students was critical for that business. And the leadership of such a university would be hired by such businesses in no time.

Jayadevan said...

Sir, I would like to draw your attention into a strange experience of mine. Last month I had a talk with a faculty member of a private engineering college, who is an assistant professor (10 years of exp). As he does not have a PhD, he was never promoted to the Associate scale. This person could not get a PhD registration in any state, central or deemed universities. Just before two days, when we met, he said that he got registration in a ‘private university’ (established after 2008) in an Indian state (I don’t want to mention the name here). He had to pay Rs.50k for the same. The interesting thing is that, the university gave him a back dated registration of 2008 (I saw the letter). So the candidate can submit the thesis in 2011 itself. No conference or Journal publication is required for the same. Everything will be managed by some agents. The university has itsown journal also for publishing the work. The said person has neither visited that Indian state, nor the University. I was shocked by hearing this and wanted to confirm the same. He gave me a list of such universities in that Indian state and the contact numbers of their agents. These universities have agents in all Indian cities and they do advertise in leading newspapers. Last week itself, around 150 candidates registered for PhD with these universities in my city itself. No need of any supervisor, exam, course work etc… The university will document everything as per UGC guidelines. The candidate has to pay for it..As the new universities compete each other, the rates are very nominal…One can get the PhD by investing only Rs. 90k. These degrees are valid, as I checked the names of these universities in UGC website. As the university could get 150 candidates enrolled from my city itself in two weeks, they might have got around ‘ten thousand’ candidates from all over India. I think these universities are doing a great service to our country by producing around 10,000 PhDs (Engineering only) in 2011. We can expect more and more in years to come..

Dheeraj Sanghi said...

@Jayadevan, this is what will happen if the regulatory mechanism restricts the entry of good quality institutions into the education sector.

Anshu Gupta said...

I agree with your view point there. But there is also a fundamental question, shouldn't every citizen should have the same right to technical education irrespective of her/his financial strength ? In your opinion what can be the fundamental changes in the AICTE norms making sure the above 'social responsibility' of the state is met and keeping a check on the quality.

Dheeraj Sanghi said...

@Anshu, Right is too strong a word for it. I would prefer to say that all students with adequate academic preparation should have access to quality higher education. But who should provide that access to those who cannot pay for such access - state or philanthropist.

WebMiner said...

"Shouldn't every citizen should have the same right to technical education" --- such entitlement is presumptuous for a society that grows the number of humans by over 4x in 60 short years (without growing the number of teachers and professors by at least 4x). You want your child to get a technical education? First outbid me.

Abhilash Inumella said...

If the fee is increased to 2 lakhs, don't you think university education will become a small and elitist affair in future? One might say there are banks which give loans.

Students - from middle class families - opting to study at such universities by taking a loan will be under huge debt. The only thing they have in mind after their graduation is clearing off bank loan. This matters a lot to the student and his family. Although some students from such backgrounds are interested in pursuing a PhD, they cannot because of various obligations.

Aren't we creating structures that by definition disallow students from doing a PhD?

Dheeraj Sanghi said...

@Abhilash, It would be nice if you could read the comments and responses as well. Your comment has been made before, and has been addressed.

Abhilash Inumella said...

I wanted to point to the notion of land grant universities( ) based on which many US universities have been established.

' ... funded educational institutions by granting federally controlled land to the states for the states to develop or sell to raise funds to establish and endow "land grant" colleges. '

Vinay said...

Dear Dr. Dheeraj

I believe that there are few vital points missing in your blog. As a result the analysis does not depict the true picture. I did not know why HINDU article avoided some important questions.

I think that you believe in free-market based economy and have an inherent assumption that these private institutions need to be self-sufficient bodies. Unfortunately, what they don't tell you?

1. These institutions are owned by business houses that are still actively engaged in other economic activities.

2. That education is still a not-for-profit sector in India, hence an investment provides TAX break. Please do not confuse it with philanthropy.

3. That the quality of graduates from these institutes is good enough for vast Indian industry that serve the low end labor requirements of Western countries.

4. Producing high quality graduates (i.e. like 8 or 10 pointers of IIT) is not in short term interest of their parent industry needs.

5. That India (even Asia) lacks it's own consumption market; even more appropriate to say that a vast population is not empowered to buy high end services. Innovation or an industry can not survive without demand.

6. That socio-economic systems have slow response rate. Adjustment of excess capacity takes time.

Shubhi Singh said...

I want to go into academia. After doing PhD from IIITD, where could I get teaching position? In IITs/IIITs/NITs?