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Hundreds Of Indian B-Schools Are Forced To Close As Business Bites

The economic slowdown in India and lack of MBA jobs has forced hundreds of Indian business schools to shut down. Recruiters warn that an MBA is not a panacea, but a starting point.

Wed May 21 2014

It had not been a good week for Dr Bala Balachandran. The founder-president of Mumbai Business School had seen his institution begin to fall as Indian universities struggled to attract students.

At the time, two years ago, he was hoping to bring in 45 students a batch but could barely scrape together 15.

Prof Bala’s business school, which was part of Great Lakes Institute of Management in Chennai, where he is now Dean, had opened up shop to snap up the many thousands of Indians enrolling in MBA programs.

Instead he found himself having to pull out of the plans. Finding willing candidates to put up the tuition was too big a challenge. Prof Bala had to cancel the whole costly operation.

“We were not able to generate the operational cash-flow and capacity utilisation was below the mark. So we decided to down the shutters,” said an official from the school at the time.

Business schools across India’s private sector have been operating at a reduced capacity and hiring figures are at their lowest level for years. MBA enrolment numbers are falling and the economic slowdown is biting.

Employment rates, for those on two-year MBA programs, across many of India’s thousands of non-elite schools dropped to 18% this year, reports the Associated Chambers of Commerce and Industry (Assocham).

The Indian Government says the economy has been growing below 5% for the past five quarters in a row. Yet two years ago, India's growth rate stood at about 8%.

Economists warn that the country needs to grow by that much in order to generate enough jobs for the 13 million people entering the workforce each year.

A lengthy period of economic stagnation has hit MBA graduates and business schools hard. Between 2012 and 2013, nearly 900 new management, engineering and technology institutes were opened in India, according to the All India Council for Technical Education (AICTE).

That figure fell to around 600 in 2013, and less than 500 have applied to open so far this year.

For some, the industry is heading towards a bust. “In the current market scenario, there is clearly a demand-supply mismatch. Placement opportunities for MBAs are insufficient,” said Hamsaz Vasunia, head of HR and development at Credit Bank. “Organisations are not able to recruit adequate resources.”

Hamsaz believes that the last decade has completely changed the dynamics of the education industry in India. The country needs “more and more MBA graduates who are employable”, as candidates applying for the common admission test (CAT) – needed for entry to elite schools – has declined for the last two years.

Part of the problem may also be lower salaries. Salary hikes in India will average 10% in 2014, the lowest in a decade, according to a survey of 565 companies by Aon Hewitt, the HR firm.

Data released by GMAC this month shows that MBA graduates in India earn much less than in the West. In the Asia-Pacific region, average MBA salaries are just $20,000 – although that reflects much lower per-capita income in the area.

Schools point to the economic slowdown as the reason for lower MBA degree enrolment and a lack of MBA job opportunities.

“Economic slowdown, stalling of new projects and investors' apathy towards key sectors like infrastructure, hotels, financial services, realty and retail have led to drying of job opportunities for several students from the b-category business schools,” said the Assocham report.

DS Rawat, secretary general of Assocham, is the kind of commentator who will give the government cause for concern. The sluggish economy has not only killed jobs, but dozens of schools are closing down. MBA candidates are less willing to invest two years’ worth of time and lakhs to earn a degree that no longer ensures success.

“More than 220 b-schools have already closed down in 2013, in cities like Delhi-NCR, Mumbai, Bangalore, Ahmedabad, Kolkata, Lucknow and Dehradun. Another 95 are struggling for their survival," said DS.

Official figures from AICTE show that more than 160 management schools have shut down in India in the past two academic years.

This decline follows a period of boom in which new institutions scrambled to set-up business schools. There are thought to be some 4,000 in the country – more than any other region.

Graduates received many job offers and this fuelled the demand for more institutions. Yet lower-quality management institutes often churned out unemployable graduates.

“Students who graduate from the top-fifty schools would have plentiful [job] choice, but as you go down the line, there could be pressure at the middle or bottom end of the structure,” said VK Menon, senior director of admissions and careers at the Indian School of Business, in an interview with BusinessBecause.

Between 2008 and 2012, the total number of management schools in the country doubled to 2,385, according to AICTE, while the total student intake rose from around 100,000 to 300,000.

The MBA degree became common. So Indians continue to make a bee-line to American schools. There are thought to be several thousand students from India who flock to the US each year for an MBA degree.

According to a survey by Open Doors, of the nearly 100,000 students from India in the US, 13% were enrolled in business schools.

Privately, European and US schools continue to express concern at the high amount of Indian candidates applying to their MBA programs.

Indian MBAs will be forgiven for a few moments of joy last week. Narendra Modi and his Hindu nationalist Bharatiya Janata party swept to power in India’s general election. Young voters placed their faith in his promises of an economic revival and job creation.

Indian stocks jumped 4.5% to record highs in early trading. Business schools share the optimism.

“There is likely to be an upward trend in economic growth that will translate into more jobs, and therefore more interest in MBAs,” said Amit Karna, an academic director at EBS Business School.

But Indian MBA providers still face several obstacles. There is a falling interest among both the elite and “second-tier” schools. There are also still wider concerns about the employment prospects of Indian graduates.

Credit Bank recruiter Hamsaz warned: “It is very important to know that while an MBA degree can give you a perspective, pragmatism will come with experience on the job. An MBA is not a panacea for all solutions, but a starting point. What you do after that will determine your career.”