Why the hand-wringing?

Perhaps it's customary. But the look of acute apologia on the faces of those involved in the decision to hike the tuition fees of IIM-Ahmedabad was hard to miss. N R Narayana Murthy, chairman of the board of governors, looked as if the institute's hand had been tragically forced, and he'd much rather that an education for the two-year post-graduate programme (PGP) would set you back by no more than Rs 1.58 lakh per annum, as earlier, than the proposed new fee of Rs 1.77 lakh. A fee hike of 12 per cent after three years is modest, and can easily be defended in terms of relative inflation. The hike is also proportionally less than the rise""from Rs 7.5 lakh to Rs 10 lakh""in the average starting salary a PGP diploma-holder gets. Moreover, IIM-A spends some Rs 3.68 lakh per student, which is an appalling subsidy for India's most fortunate kids, arguably.

The question to ask might be what the market would price an IIM-A seat at. This is not to suggest that education is suited to unbridled market pricing, it is not (because prices would not capture societal gains and priorities). But it could illustrate the time warp that the current pricing model is in for the IIMs, if it turns out that students are willing to pay a great deal more. The competition for IIM seats has become so intense now, with the ratio of applicants to seats verging on 175:1, that even the most successful of IIM alumni shudder at their prospects if they were made to go through the screening process again. Thus, for the sake of argument, it is not absurd to suggest that for every 1,000 students who make it to the IIMs, another 10,000 are left out who may be equally deserving of a seat (or at least equally likely to succeed as managers). For this group of "parity wizkids", making the cut these days looks more and more a luck-of-the-draw matter.

Hence, for the sake of price discovery, it's worth asking: what if these wizkids (say, 10,000 of them) were to bid for seats in an open auction""what would they value a seat at? By forcing applicants to make bids against their estimates of the discounted future value of an IIM education, such an auction would also align the tuition fees, over several iterations, with market demand for the prized qualification.

Good idea? Not quite. For a variety of reasons, this sort of dynamic pricing model is best recommended for data capture purposes, not actual seat allocation. Subjecting academia so sharply to market forces could distort the very idea of education by destroying the independence (or insulation) that is crucial to any truly intellectual pursuit. Over time, recruiters may come to be disappointed in such diploma holders. Also, from a broader policy perspective, quality education has an inherent value that the market cannot always "price" to society's satisfaction, and it should ideally be available to students who make the best use of it, regardless of what they can afford or are willing to pay. But having conceded all that, surely there is room for arguing that IIM students should not be subsidised by the state, especially if it can be ensured that financially needy students are given scholarships or helped with bank loans? The hesitation with which the different IIMs have raised their fees this past week suggests that this logic has still not been bought by those in charge.