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BW Businessworld

Declining Numbers

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The numbers say it all. In 2010, the number of aspirants appearing for Common Admission Test (CAT), conducted for entry into top B-schools in India, dropped to 204,000 from 275,000 in 2008, an astounding dip of 26 per cent. The GMAT — standardised test of mathematics and English language for admission into graduate business administration programme — showed a similar trend; the number of Indian aspirants fell from 21,612 in 2009 to 18,675 in 2010. Another such examination, NMAT, for Narsee Monjee Institute of Management Studies (NMIMS), Mumbai, saw aspirants slipping from 45,000 in 2009-10 to 40,500 in 2010-11. Again XAT, an examination meant only for students appearing for XLRI, Jamshedpur, also saw aspirants decreasing from 103,427 in 2009 to 84,979 in 2010. Interestingly, in 2009, all these exams had seen an increase in aspirants over 2008.

So, is the hottest career option not luring the young Indian any more? The answer lies in the economics of a Masters in Business Administration (MBA) programme.

"In the past couple of years, the supply of MBA students has been more than the demand," says Harivansh Chaturvedi, director, Birla Institute of Management Technology (Bimtech), Noida. "There are approximately 3,900 B-schools in the country today and they have a capacity of about 400,000 students a year. However, jobs created by the corporate sector today are for just 100,000 students a year." So, where do the remaining 300,000 students go? This could be better explained with a real life example.

Take the case of Gaurav (name changed on request), a young student from a small town in Uttar Pradesh. He took admission in a Tier 2 B-school in Gurgaon in 2008 and paid a fee of Rs 8 lakh (including hostel fees) to pursue MBA in marketing. Gaurav had to take an education loan of Rs 5 lakh for the course, which he thought would be easy to pay off once he lands a high-paying job at some big MNC.

However, though an above-average student, Gaurav's dreams fell flat. He had to settle for a job of a salesperson in a car showroom in Delhi that pays him Rs 15,000 per month. From that, he has to pay about Rs 5,000 per month as EMI for his education loan. A commerce graduate from Uttar Pradesh, Gaurav could have easily got the same job two years ago without even doing an MBA. Now, apart from spending two years in the course, Gaurav has a debt of over Rs 5 lakh. This, increase in college fees but not in salaries, is one reason why number of aspirant is going down, says Bimtech's Chaturvedi.

Every year, Indian B-schools churn out thousands of students like Gaurav, who after passing out from Tier 2 or Tier 3 colleges, land jobs that do not require an MBA degree and end up getting paid about Rs 60,000-2 lakh per annum, which is just not worth the effort.

According to Himanshu Aggarwal, co-founder and director at Gurgaon-based Aspiring Minds, an assessment and recruiting firm, there is also a steep mismatch between student expectations and the jobs being offered in Tier 2 and Tier 3 MBA schools. The mismatch is not only in terms of salary expected and offered, but also in roles: the opportunities are predominantly in direct sales and other sales roles. "Due to lack of adequate tools to select people that fit their jobs right, companies end up having a fairly short fuse in expecting performance," says Aggarwal. "This creates non-performance rates as high as 45-55 per cent in the first three months. High attrition aggravates the situation, causing discomfort to the company and the candidates."
The situation is quite different at leading B-schools. In the case of Indian School of Business (ISB), Hyderabad, last year, out of 310 recruiters, 75 were international companies. "Interestingly, countries like Hong Kong, Indonesia, Dubai, Singapore and Thailand have shown an upward curve in hiring," says V.K. Menon, senior director for careers, admissions and financial aid at ISB. Average salary (mid-range) at ISB stood at Rs 70.92 lakh in 2011, which is a great return on investment for an institute that charges Rs 20 lakh for a one-year course.

But in the case of Gaurav (and others like him), an MBA turns out to be a completely dead investment. So, where does the problem lie?

The recruitment pattern of companies has changed. Corporates are more interested in hiring someone with work experience than a fresher who is just out of a B-school, limiting the choices for an MBA pass out. "The risk of leaving a job and enrolling in an MBA programme has also gone up significantly as they are not sure of placements and high salaries," says Debashish Sanyal, dean of NMIMS.

Many of the 3,900 MBA colleges in the country have sprung up only in the past five years when the demand for MBA students was at its peak. However, these institutes haven't been able to come close to a top B-school's quality of education. "If you see the expansion pattern of MBA, it could not keep pace with the quality the market expected," says Devi Singh, director of IIM Lucknow. Adds Narayanan Ramaswamy, executive director of KPMG Advisory Services: "Availability of good faculty, right content, infrastructure and employability of graduates is limiting the career growth of MBA aspirants."

The declining numbers also point to the fact that students now have other options and are willing to enrol in specialised courses such as in design, technology, films, international relations and environment, according to Debashis Chatterjee, director of IIM-Kozhikode. With such courses, the placement is more or less guaranteed, fees are low compared to MBA and, most importantly, even you if you have to give an entrance test, the competition is much less compared to something like a CAT or a GMAT.

So, is it all over for the MBA as the ultimate road to success and riches? Not likely; good placements in 2011 might see more entrants queuing up next season. As Chatterjee says: "The declining numbers is not a trend but a wake-up call." That ought to push emerging B-schools to get their priorities right.