January 11, 2006EconomyForeign AffairsPublic Policy

Does the overseas venture of IIMs hinder their domestic expansion?

No. On the contrary…

This is an archived blog post from The Acorn.

The reasons the Indian governement gave for refusing to allow the Indian Institute of Management-Bangalore (IIM-B) to open its first overseas campus in Singapore are that overseas expansion is not permitted under the IIM charter, and that they must focus on addressing the huge domestic supply/demand gap’ first. The first is bureaucratic. The second is idiotic.

On the other hand there are several reasons why allowing the IIMs to spread their wings internationally is in India’s interests. Some have to do with improving the quality and quantity of management education in India. Others of these have to do with projecting India’s soft-power’ abroad.

It is a well-known fact that overseas campuses allow universities an excellent means to generate revenues, in hard currency, by tapping the global market for management education. The need to keep tuition affordable and equitable leaves universities with little room to increase fees in their domestic markets, resulting in their dependence upon government grants and alumni donations. But once they step out of their home ground, they are acknowledged to be purveyors of a luxury’ good, and are able to charge a premium over their costs. And apart from rentals of building and facilities, the cost of overseas expansion is marginal. Like prestigious universities elsewhere, the IIMs have an excellent opportunity to make some good money.

And contrary to the simplistic assumptions of the Indian government, the overseas expansion does not necessarily come at the cost of the IIMs domestic expansion. For a start, the extra revenues raised abroad can be used to attract talented faculty to improve the quality of teaching. And extra revenues can be used to fund domestic expansion — a cross-subsidy of sorts, where in effect, foreign students pay a part of the domestic student’s fees. In its absence, funds for domestic expansion will have to come from the government or students.

What about faculty then? Will there be enough good professors to handle growth. It is a fallacy to believe that there are only a fixed number of good business school professors out there. Provided they offer the right incentives, the IIMs will be able to attract sufficient number of staff to teach at their new domestic and foreign campuses. So the ability of the IIMs to recruit more staff is not constrained by the number of campuses it sets up, but the kind of incentives it offers to prospective faculty. Allocation of staff, like allocation of funds is a management challenge. Surely, more than the presumptious folks at the human resources development ministry, the IIMs can be trusted to figure that one out.

The IIMs are well-placed to be international ambassadors of the Indian industry. And beyond education and business, the expansion of Indian social, cultural and educational institutions serve to enhance its soft-power abroad. From a foreign policy perspective, IIM-B’s Singapore campus is a no-brainer. In fact, the Indian government should consciously encourage IIMs, IITs and private schools to set up more such branches, and take in more foreign students in their domestic campuses. In yet another example of disconnected decision-making in Dr Manmohan Singh’s cabinet, the human resources development ministry seems to have taken this decision without taking into consideration wider economic and foreign policy interests. Despite its explanation, it is hard to beat the conclusion that the reason the Indian government has blocked IIM-B’s foreign venture to prevent it from achieving greater financial freedom. The prime minister would do well to reverse a myopic, retrogressive and ultimately self-defeating decision made by his feckless HRD minister.

Update: The Indian Express sheds more light on the bungling within the HRD ministry, and criticises its decision in a related editorial.

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