The ROI Of An MBA

Last month, environment minister Jairam Ramesh stirred up a hornet's nest by apparently saying that while the students going to IIMs (and IITs) were world class, the institutes themselves were not. While many people — especially the faculty and the alumni of these schools — vociferously contested this, there were also those who agreed.

Meanwhile, largely unnoticed by the Indian press, an equally heated debate was going on in the US. This one was initiated by Peter Thiel, co-founder of PayPal and angel investor in Facebook, who said  there was an education bubble building up, and that college education was probably not worth the price. Mounting debt taken for a college education coupled with a lousy job market for graduates was the provocation for his comments. Again, while there were angry reactions, there were those who worked out that the return on investment for college education was getting worse over the years.

The reality is somewhat more complicated than either Ramesh's and Thiel's supporters or their detractors like to think. Let me stick to the Indian situation. I agree with Ramesh's position that the IIMs (and IITs) get exceptionally bright students who would have been successful even if they went somewhere else. The entrance exams are among the toughest in the world, and people who have "aced" these score even better in international tests. Also, no one can dispute that the research coming out of our premier institutes do not match up to international standards.

But then, in my opinion, colleges evolve to serve what the markets demand. The Indian market pays a poor premium to research, unlike in the US. The IITs and IIMs specialise in turning out graduates who are quite well equipped for the Indian job market. Indeed, even international investment companies come to recruit graduates of the IIMs — something they would not do if the education was not up to standard. (Most IIMs and the top Indian B-schools boast 100 per cent placements, unlike some of the reputed global B-schools.)

As for Thiel's argument, while it may be somewhat true for the US, India has a very long distance to go before it gets to such a situation. Higher education in India is still extremely cheap — and the ROI is distinctly better.

(This story was published in Businessworld Issue Dated 27-06-2011)