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Private Engineering Education in India Market Failures and Regulatory Solutions

Private Engineering Education in India Market Failures and Regulatory Solutions

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Private Engineering Education in India: Market Failures and Regulatory Solutions
Lav R. VarshneyScience, Technology, and Public PolicyMassachusetts Institute of TechnologyNovember 29, 2006
1Engineering education in India has seen tremendous growth over the past decade, both innumber of students and number of colleges (see Table I), however the average quality of thecolleges and graduated students has become suspect (Sengupta, 2006). A survey of humanresource professionals at multinational corporations in India revealed that only one quarter of engineering graduates with a suitable degree could be employed irrespective of demand (Farrellet al., 2005). Another survey of employers shows that only a handful of the 1400 engineeringschools in India are recognized as providing world-class education with graduates worthy of consideration for employment (
Globalization of Engineering Services
, 2006). These resultssuggest that engineering degrees from most Indian colleges do not provide signaling value in theengineering labor market. Hence, low quality (in the labor market sense) engineering schoolinghas come to predominate in the education market. The current situation, with an abundance of low quality engineering schooling, is considered objectionable by many in the Indian polity andis also projected to stifle growth of the Indian economy (
Globalization of Engineering Services
,2006). It is our purpose to investigate the factors that lead to the current state of technicaleducation in India and to suggest public policies that would rectify the situation. Since the recentgrowth in Indian engineering education has been overwhelmingly due to privately fundededucational institutions rather than publicly funded ones, our focus lies thereto.Often arguments are made that environmental policy cannot and should not be reduced tocost-benefit analysis, since life, health, and nature cannot be reduced to monetary values and thatattempts at such reductions are depraved (Heinzerling and Ackerman, 2002). Similarly, manyprotest that “placing a ‘price’ on education is to debase it” (p. 7, Schultz, 1963) and that analysisof the education system cannot be reduced to the economic calculus of costs and benefits(Schultz, 1963). In fact the Indian Supreme Court has said, “Education has never beencommerce in this country. Making it one is opposed to the ethos, tradition and sense of thisnation.” (Kapu and Mehta, 2004). We note that although these other considerations may cast thenormative model for education policy as different from the cost-benefit model, we assert thatindividual actions by students and private colleges in the Indian engineering education market aswell as by graduates and employers in the Indian engineering labor market are driven largely byeconomic considerations. The assertion of economic motivation of students and colleges followsfrom the behavior reported in (Kapu and Mehta, 2004) and personal communication with several
School Year Number of Degree Colleges Number of Incoming Students
1997–1998 562 1342981998–1999 644 1531511999–2000 755 1796472000–2001 821 2091152001–2002 1057 2938142002–2003 1195 3562582003–2004 1263 3808032004–2005 1358 4509542005–2006 1478 508595
Table I
. Growth in number of engineering degree colleges and number of incoming engineering students.Data from p. 214 of 
 Annual Report 2005–06 
, Dept. Secondary and Higher Education, Ministry of HumanResource Development, India.
Indian engineering students and graduates. Hence, economic analysis is a justified approach tothe analysis of the Indian engineering education system.First we specify the benefits and costs of education to the individual student. One canbroadly divide goods and services into two classes: consumption are those from whichconsumers derive present benefit; investment are those which are used in production over a long-term (Vaizey, 1962). Schooling has the attributes of consumption, as it can immediately providethe enjoyment of one’s classmates company, the joy of learning, and the satisfaction of accomplishment. The consumption “consists of values associated with education that are not asa rule vocational, occupational, or professional” (p. 8, Schultz, 1963). Schooling also has thecharacteristics of investment, as it can affect the capacity to enjoy books in the future, affectfuture consumption rates, and increase future earnings. The human capital investment benefitsaccrued through schooling are not like other non-human benefits and cannot be sold in the samemanner. Although the investment benefits of schooling should not be lessened merely becausethere are also consumption benefits, often there is a tradeoff between consumption andinvestment attributes of schools. Students must often forgo the present enjoyment associatedwith less rigorous schooling for the long term benefits of rigorous schooling. As some mightsay, steel forged in hotter fires is more valuable for future production. Vocational, occupational,or professional benefits from schooling are the ones that we will focus on here, in particular withregards to the valuation of these benefits in the labor market. Note that when we discusseducational benefits, we restrict our attention to formal, degree-granting schooling, even thoughsimilar benefits may be derived through informal education systems such as the Massachusetts

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