It is time once again to lay that old chestnut to rest. The specious claim that the IITs are better than some of the best universities in the world is beyond slack-jawed silliness. I am reminded of that by this tweet by my friend @KiranKS

Infosys founder Narayana Murthy's son wanted to do Computers at IIT. But didn't get within 200th rank. Went to Cornell. Ivy League a backup! — Kiran Kumar S (@KiranKS) March 29, 2013



That is, if you are unable to “do computers” at IIT, your backup plan B is to get into an Ivy league school. So if Ivy league schools are safety schools, imagine how much ahead of them must be the IITs.

I have been debunking that for a long time. See this an old post, “Imagine no Reservations” May 2006 (seven years ago — how the years fly by!):

The fundamental problem with the Indian economy is that the education system is one of the most flawed systems in the country. If there is one sector which is in dire need of reform, it is that education system. The most urgently required reform is to get the government out of it—lock, stock, and barrel. The recent move by the government to further increase quotas in the so-called elite institutions with a view to social justice is akin to rearranging the deck chairs on the Titanic. No, I take that back: it is akin to scuttling the lifeboats even as the ship is sinking.

I have heard the claim that the Indian education system must be wonderful because the IITs produce so many wonderfully successful NRIs (non-resident Indians), especially in the US. They bolster their argument with the specious reasoning that it is harder to gain admission into IITs than into Ivy league schools, and that Narayana Murthy’s son had to use an Ivy league school as a safety school.

Sure it is harder to get into the IITs than into the top American schools. That does not mean that the IITs are in any way better than those American schools. It is a Herculean task to get into a Mumbai local during commute hours, compared to which using the Paris Metro is a piece of cake. Congestion is not an indicator of quality. When supply is severely limited relative to demand, there will be a mad scramble to get some.

On average, fewer than two out of every one hundred who appear for the entrance exam for IITs get admission. If you were to choose the top two percent of any population, the average quality of that group will be a few sigmas higher than the population average. The IITs turn out good students because those who get in are good to begin with. Then for four years, these way-above average kids compete fiercely among themselves for grades. Finally, from this bunch of super-achievers, those with the highest grades and potential are snapped up by the best American universities. By the time these graduate out of the American universities, they are the crème de la crème who have self-selected themselves for intelligence, drive, ambition, and vision. We read about them as the Silicon Valley millionaires and billionaires, and pat ourselves on the back for having a wonderful educational system.

That is most definitely not so. The dysfunctional Indian education system is the saddest and costliest example of governmental ineptitude and malfeasance. The solution to the problem of the Indian educational system has to have at its core getting the government to let go of its choke-hold on the system.

While on the topic, here’s a bit more from a later post of Jan 2010, “Rethinking Entrance Exams“, which may be of interest.

I have discussed on this blog at some length the problems of higher education in India. To summarize briefly, the problem is one of scarcity of supply. This is what I call an “engineered scarcity” because it arises from the government control of the system. In free societies with free markets, scarcities are not a chronic feature. Why? Because any scarcity due to say sudden and persistent increase in the demand is met with increased prices which in turn increase supply and the scarcity disappears. For scarcity to persist for decades, the system has to be rigged such that the supply cannot be changed to respond to the demand.

The government of India depends on manufactured scarcity because socialism thrives thus: first create the scarcity through governmental control; then the government doles out the scarce thing to favored groups; the people are brainwashed into thinking that since the government is the source of the supply, it (the government) must be the benevolent entity in the economy; therefore all efforts must be made to keep on the good side of the government so that one is favored with some of the scarce good.

The Indian government controls the supply of education for two reasons. First, it can extract rents from it. Licensing is the mechanism. To get licensed, one has to pay a bribe — often in the hundreds of millions of rupees to officials who have the discretion to refuse the license. Rent seeking is one motivation for the government control. The other reason is related to India’s “democracy” — buying the allegiance of favored vote banks by discriminating for and against specific groups. If you belong to a specific religious group, you get special treatment, and therefore that religious group’s vote is guaranteed.

Manufactured Shortage

This is all old hat and I merely repeat it here for setting the context. The main thing is that education in India suffers from engineered (or manufactured, if you please) shortage. This leads to immense social welfare losses. I propose one mechanism to fix one small part of this welfare loss. I say “small” only because it is small relative to the aggregate set of problems, not because it is trivial. This small part actually amounts to billions of dollars worth of welfare losses.

Now on to the specifics. The problem I will address is one of selecting who gets to have the privilege of going to an elite publicly funded elite institution of higher learning such as the IITs.

FACT A: The demand far outstrips the supply. Why? First, because the education is subsidized. So you get more than you pay for. When something is under-priced, naturally the demand will be higher. Second, even if the education were priced at full cost, the life-time benefit of an IIT education far exceeds the full price.

FACT B: Because of fact A, people are willing to pay a high price to get into an IIT. How much would people be rationally willing to pay? Something approaching the difference between the private cost of an IIT education (tuition fees, food, rent) and the private benefit (the discounted net present value of an IIT education.) So if the discounted net present value of an IIT education is Rs 100 lakhs, and the private cost is Rs 16 lakhs (4 lakhs per year for 4 years), then people would be willing to pay upto Rs 84 lakhs.

But of course no one really pays that much to get into an IIT. For one thing, for Rs 84 lakhs, one can go abroad and get a decent undergraduate degree. The point here is that people are willing to spend a large amount of money to just get into an IIT. And they do indeed spend a lot in their attempt to do so. An entire industry exists just for that purpose. The coaching classes industry. The more successful firms in this industry charge more fees than the IITs charge. And people routinely spend more on trying to get into an IIT than they would spend if they ever got into one.

As I have mentioned previously in a post before, the more successful coaching classes, let’s call “1st order”, themselves have to select whom they will admit — which leads to the absurd situation that there are “2nd order” coaching classes — those that coach students to pass the entrance exams of the “1st order” classes. Venkatraman Ramakrishnan mentions this in his interview. But I’ll come to that in a bit.

Cost of Coaching

For now, let’s do the numbers. The figures say that around 300,000 students appear for the Joint Entrance Exam (JEE) for IITs. These days it is not unusual for students to go to coaching classes for a couple of years before attempting the JEE. Assume conservatively Rs 1 lakhs per year as the cost of getting coached. Assume that around 2 out of 3 of those who appear for the JEE have attended coaching classes. That gives us an estimate of Rs 6,000 crores (2 lakhs x 300,000) for the size of the IIT coaching industry. (That’s approximately US$ 1.3 billion.)

That $1.3 billion is incurred every year and what is worse, it is amounts to a huge welfare loss since it is essentially a rent-seeking activity and therefore a dead-weight loss to society. The coaching does improve an individual’s chance of getting into an IIT but its aggregate social effect is nothing at all. It just intensifies the competition. It is an educational arms-race.

An analogy I find illuminating is this: if I stand up on my seat at a stadium to get a better view of the game, some others will also do so. Then in a short while, the entire stadium will be standing up and everyone will be exactly where one was in terms of visibility of the game while sitting down but now everyone ends up paying the price of watching the game standing up.

From the pool of 300,000 aspiring students who appear for the JEE, around 10,000 are selected. That’s one student out of 30. But is it true that the students ranked 10,001 to 50,000 are incapable or unprepared for studying in an IIT? Most likely, they are almost as good as those ranked above them. I am confident that if the capacity exited, 50,000 students could enter the IITs and do as well. We all know of people who failed to get into an IIT and ended up being very successful. Recently I learned that Venkatraman Ramakrishnan did not make the IIT grade but was good enough to win a Nobel prize in Chemistry. (That name once again!)

Changing the Rules

The rules of the game have to be changed. The best option would be to get the Indian government out of the life-blood-sucking control of education it has. But that is going to happen the day hell freezes over. The second best option therefore is to fix this welfare loss of competitive exams and make the whole business of coaching classes irrelevant.

Well, that’s it. Forced to recycle stuff every now and again because the canard that IITs are the cat’s whiskers just refuses to die.

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