Private Engineering Education in India: Market Failures and Regulatory Solutions Lav R.

Varshney

Science, Technology, and Public Policy Massachusetts Institute of Technology November 29, 2006

Engineering education in India has seen tremendous growth over the past decade, both in number of students and number of colleges (see Table I), however the average quality of the colleges and graduated students has become suspect (Sengupta, 2006). A survey of human resource professionals at multinational corporations in India revealed that only one quarter of engineering graduates with a suitable degree could be employed irrespective of demand (Farrell et al., 2005). Another survey of employers shows that only a handful of the 1400 engineering schools in India are recognized as providing world-class education with graduates worthy of consideration for employment (Globalization of Engineering Services, 2006). These results suggest that engineering degrees from most Indian colleges do not provide signaling value in the engineering labor market. Hence, low quality (in the labor market sense) engineering schooling has 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 and is 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 technical

education in India and to suggest public policies that would rectify the situation. Since the recent growth in Indian engineering education has been overwhelmingly due to privately funded educational institutions rather than publicly funded ones, our focus lies thereto. Often arguments are made that environmental policy cannot and should not be reduced to cost-benefit analysis, since life, health, and nature cannot be reduced to monetary values and that attempts at such reductions are depraved (Heinzerling and Ackerman, 2002). Similarly, many protest that placing a price on education is to debase it (p. 7, Schultz, 1963) and that analysis of 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 been

commerce in this country. Making it one is opposed to the ethos, tradition and sense of this nation. (Kapu and Mehta, 2004). We note that although these other considerations may cast the normative model for education policy as different from the cost-benefit model, we assert that individual actions by students and private colleges in the Indian engineering education market as well as by graduates and employers in the Indian engineering labor market are driven largely by economic considerations. The assertion of economic motivation of students and colleges follows from the behavior reported in (Kapu and Mehta, 2004) and personal communication with several

School Year Number of Degree Colleges Number of Incoming Students 19971998 562 134298 19981999 644 153151 19992000 755 179647 20002001 821 209115 20012002 1057 293814 20022003 1195 356258 20032004 1263 380803 20042005 1358 450954 20052006 1478 508595
Table I. Growth in number of engineering degree colleges and number of incoming engineering students. Data from p. 214 of Annual Report 200506, Dept. Secondary and Higher Education, Ministry of Human Resource Development, India.

Indian engineering students and graduates. Hence, economic analysis is a justified approach to the analysis of the Indian engineering education system. First we specify the benefits and costs of education to the individual student. One can broadly divide goods and services into two classes: consumption are those from which consumers derive present benefit; investment are those which are used in production over a longterm (Vaizey, 1962). Schooling has the attributes of consumption, as it can immediately provide the enjoyment of ones classmates company, the joy of learning, and the satisfaction of accomplishment. The consumption consists of values associated with education that are not as a rule vocational, occupational, or professional (p. 8, Schultz, 1963). Schooling also has the characteristics of investment, as it can affect the capacity to enjoy books in the future, affect future consumption rates, and increase future earnings. The human capital investment benefits accrued through schooling are not like other non-human benefits and cannot be sold in the same manner. Although the investment benefits of schooling should not be lessened merely because there are also consumption benefits, often there is a tradeoff between consumption and investment attributes of schools. Students must often forgo the present enjoyment associated with less rigorous schooling for the long term benefits of rigorous schooling. As some might say, 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 with regards to the valuation of these benefits in the labor market. Note that when we discuss educational benefits, we restrict our attention to formal, degree-granting schooling, even though similar benefits may be derived through informal education systems such as the Massachusetts

Institute of Technologys OpenCourseWare (Lerman and Potts, 2006). The main benefit not provided by such informal educational systems is signaling of quality in the labor market. In general, an educational degree comes to signal quality in the labor market for several reasons. First, filtration is provided by the admissions process of the educational institution: gaining admission by itself may indicate that some standard has been achieved. Second, the student presumably gains knowledge and skills through coursework, completion of which is indicated by the degree; education without a degree cannot be certified. If the degree program is accredited to meet certain standards by a putatively neutral body, this indicator is strengthened. In the

engineering education context, the engineering degree may signal that the degree holder possesses knowledge and skills that are applicable to the profession of engineering. Finally, successful completion of the educational endeavor may indicate certain positive personal qualities. The costs of schooling borne directly by the student are mainly the earnings foregone by going to school rather than working and the school tuition. Public expenditure may also cover some costs of schooling. Given that we have established the costs and benefits of schooling for the student, we must also establish incentives for the provision of schooling. Although we are treating the educational enterprise in economic terms, we must point out that there are differences between education and more conventional industries. As noted by Schultz (p. 4, 1963), With a few unimportant exceptions, schools are not organized and administered for profit. In fact, the 1992 Indian Supreme Court decision in St. Stephens v. University of Delhi ruled that educational institutions are not business houses; they do not generate wealth. Moreover, in the 1993 Unni Krishnan v. Andhra Pradesh decision, the court ruled that education could not be the object of profit-seeking activity. The Court does allow institutions to deduct reasonable operating and other capital expenses (Kapu and Mehta, 2004). Most engineering colleges are now privately supported rather than through public expenditure: private colleges account for 86.4 percent of students and 84 percent of engineering colleges (Kapu and Mehta, 2004), see also Table II.1 Despite legal prohibitions on profit, Kapu and Mehta (2004) argue that the growth of private
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This is in stark contrast to other countries where most higher education resources are provided from public funds. In Denmark and Holland, 2% is private funding; in Canada, 10% is private funding; in the United States, 22% is private funding (Kapu and Mehta, 2004). The engineering college boom in the United States, when the number of engineering schools increased from 6 to 70 between 1862 and 1872, was largely due to direct federal funding through the Morrill Act (p. 24, Noble, 1977), a Stiglerian direct subsidy of money (Stigler, 1971). The engineering college boom in India, detailed in Table I, is largely due to private funding.

State Government Colleges Private Colleges Andhra Pradesh 10 213 Assam 3 0 Bihar 4 3 Chattisgarh 2 9 Delhi 7 7 Gujarat 9 16 Haryana 7 29 Himachal Pradesh 2 3 Jharkhand 4 2 Karnataka 13 99 Kerala 31 51 Madhya Pradesh 6 47 Maharashtra 16 133 Orissa 6 38 Punjab 11 27 Tamil Nadu 16 234 Uttar Pradesh 25 58 Uttaranchal 5 4 West Bengal 15 37
Table II. Numbers of government engineering colleges and private engineering colleges in major Indian states, 2003. Data taken from (Kapu and Mehta, 2004); original data from All India Council for Technical Education.

engineering colleges is simply an artifact of politicians creating opportunities to collect rents. That is to say, private engineering colleges are organized and administered for profit in spite of legal prohibitions. Now that we have established the incentives of students and of colleges, we may apply economic analysis. First we assume that the private engineering education market functions without failure. In the labor market, firms and graduates both know the quality of a graduate from a particular college. Based on this knowledge and through market interaction, prices for graduates of particular quality are set. These prices, inasmuch as they are determined by the signaling function of degree-holding,2 will be the quality indicator in the education market. Prospective students and colleges will know the signaling quality of a degree from a college, and
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Note that here we are assuming that the average quality of a graduate from a particular college is known, not that the actual quality of a particular graduate is known. Under the alternative enhanced information pattern, the degree would grant no signaling function whatsoever, as each candidate could be judged directly. Moreover note that under the reduced information pattern, the degree is not the sole factor in determining price in the labor market. Factors such as nepotism or communal ties may also come into play, however we assume that these can be separated.

prices will thus be set.

Since we are treating schooling as an investment, under perfect

information, the greatest amount that a college will be able to charge is the amount that will be recovered by the student in net increase of benefits through employment. If there is an

overabundance of engineers produced by the colleges, one would expect prices for engineers to decrease, thereby driving the weakest of engineers out of the labor market. Since these weak engineers are produced by the weakest of colleges, the weak colleges would be driven out of the education market. This process would continue until the supply and demand in the labor market and thereby in the education market achieved equilibrium. Thus under perfect market

conditions, one would not expect a surplus of weak engineers in the labor market, but this is exactly what is observed in the Indian engineering market. We are now in a position to determine the causes of the surplus of low quality engineers and the proliferation of low quality engineering education in India, as it is not the result of perfect market forces. Recall that we are determining quality of education by the interaction of college graduates and employers through the labor market. That is, we are determining quality by the investment attributes of schooling rather than the consumption aspects of schooling. Engineering colleges are typically able to ascertain the quality of schooling that they provide, e.g. by tracking alumni or communications with industrial bodies. Students, however, are not able to make such determinations. Students will only enter the labor market upon completion of their studies, and so must make a determination of quality without a direct test. Moreover, they are seldom well informed even when it comes to job opportunities in the near future, namely, about jobs and earnings likely to await them when they complete their schooling. (p. 22, Schultz, 1963). This is a general property of educational markets, since almost by definition, students are unsure of their talent, and only discover them by going to school (Schultz, 1963). In the Indian context, one medium where the apprehension of prospective students in choosing colleges is revealed is in questions left on a blog about private higher education (Satyanarayan, 2003; Satyanarayan, 2004). The blogger is presumed to be able to provide information to mollify the prospective students information shortage. The information asymmetry in general education markets is further born out by the differences in college choice among children of university faculty, who presumably have access to side information, and their cohorts (Siegfried and Getz, 2003). As a side note, the information asymmetry problems associated with the investment attributes of education may not be present for the consumption attributes of

education. The quality of dormitories, the gender ratio of the student population, and the beauty of the university campus, among other things, are all assessable by students. Since our focus is on the investment attributes of schooling, the information asymmetry stands. As argued by Akerlof (1970), due to the informational asymmetry between colleges and students, the price that students are willing to pay is determined by the average quality of the ensemble of engineering colleges rather than by the quality of the particular engineering college itself. This pricing structure, however, will drive high quality schooling (with presumptively higher costs) out of the market, and low quality schooling will predominate. This lemons adverse selection failure of the education market is the reason for the proliferation of low quality engineering education in India. This adverse selection problem will also drive students looking for high quality schooling out of the market altogether. It is worth pointing out a key difference between the education market and a market such as for used cars. Unlike the used car market, where the quality of particular car is fixed, the quality of a particular school can be modified. By reducing the quality of faculty and facilities, with a presumably commensurate reduction in costs, an engineering college may reduce the cost and quality of education provided. This difference explains why there is only degradation in the quality of education on the market, rather than a reduction in the number of vendors in the market; in fact, there has been an increase in the number of vendors in the engineering market, Table I. Before promulgating public policies to rectify market failures, let us review the manifestations of the market failure in more specific terms. The first problem is the spiraling decrease in quality of engineering education, as measured by suitability of graduates for the labor market. As noted by Akerlof (1970), An untrained worker may have valuable natural talents, but these talents must be certified by the educational establishment before a company can afford to use them. The certifying establishment, however, must be credible. Graduates from the top Indian schools rank excellently in employment suitability, but there is a steep decline in quality beyond these top-tier schools. Many so-called 'degrees' just do not have the right fundamental education behind them, according to one human resources professional (Farrell et al., 2005). Most observers agree that Indian universities, with a few exceptions, do not perform this signaling effect. A degree from any of these universities could mean anything in terms of quality (Kapu and Mehta, 2004). One further piece of evidence of college degrees not

providing signaling functions is the significant expansion of certification programs from

companies such as Microsoft in India (Karlin, 2006). The wide heterogeneity in quality of universities explains why only 25% of Indian engineering graduates are considered suitable for employment (Farrell et al., 2005). The main reasons that graduates are unsuitable for the job market are the lack of necessary language skills; the low quality of significant portions of the educational system and its limited ability to impart practical skills; and a lack of cultural fit, which can be seen in interpersonal skills and attitudes towards teamwork and flexible working hours (Farrell et al., 2005). The top-tier engineering colleges are the Indian Institutes of Technology (IIT) at Bombay, Delhi, Kanpur, Kharagpur, Madras, Guwahati, and Roorkee, which were established as Institutions of National Importance by the Institutes of Technology Act of 1961. They are controlled by the national government and are globally competitive and

contribute significantly to development of technical manpower and technology development in the country (Annual Report 200506). Since these universities are not subject to the same market forces as privately funded colleges and are also not profit-seeking, it is not surprising that the decrease in quality does not apply. One might even argue that these institutions are external to the Indian engineering education market that we have been discussing. A degree from an IIT (or perhaps just gaining admission into an IIT) does signal quality in the labor market; the institution is credible. Foreign engineering colleges are also considered credible and external to the Indian educational market. In fact, a foreign degree has been a traditional signal of quality in India.

During the nineteenth century, Many among the most conspicuously successful in Indias rising middle class had studied abroad, which almost always meant England,3 and were members of a category broadly called foreign returned. Even at the lower levels in the social system, this identification ensured a competitive advantage in employment opportunities (Lambert and Bressler, 1955). Returning to the modern educational market, estimates indicate that there were about 110,000 Indian students studying abroad in 2004, nearly 75,000 in the United States, about 14,000 each in the United Kingdom and Australia, and another 5,000 in Canada and New Zealand (Kapu and Mehta, 2004). A conspicuous example is Rohan Murthy, son of Infosyss
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The United States was also a destination for foreign study. To take an example, Ishwar Das Varshnei obtained the S.B. in chemical engineering from the Massachusetts Institute of Technology in 1906 and would go on to found several leading glass manufacturing companies in India. With the growth of Indian nationalism and the restoration of the prestige of Indian culture, there was some stigmatization for those too closely associated with the British, in some sense an Olsonian selective incentive for political interests (Olson, 1982), hence the U.S. might have become a better option. Separate from the signaling function, arguably the knowledge and skills gained in the U.S. were also superior to those available to be gained in Britain.

leader Narayana Murthy, who wanted to study at an IIT, but couldnt get in; he went to Cornell University instead, rather than an Indian college (Stahl, 2003). Entering foreign engineering colleges exemplifies the exit from the Indian engineering market by students willing to pay for high quality schooling, the second part of the adverse selection problem. This problem has significant leakage externality problems for India, as it results in a so-called brain drain. As noted by Ravindran (2005), with the demand and value Indian students place on American higher education, and with the greater availability of student loans in India, there is bound to be a steady increase in students going to the United States, as the investment will be well worth it in terms of career opportunities. A very recent piece of draft legislation that is expected to be discussed during the current session of parliament is being proposed in an apparent attempt to quell leakage while maintaining the positive signaling functions of foreign degrees. Namely, foreign educational institutions will be allowed to open campuses in India (Economy Bureau, 2006). This proposed policy shift provides further evidence of the quality assumed for foreign degree-holders. According to M. Anandakrishnan, the chairman of IIT-Kanpur, it is expected that second- and third-tier foreign universities, rather than top-tier institutions such as MIT [Massachusetts Institute of Technology], Harvard University, Stanford, Yale and Princeton will take advantage of this policy change (Viswanthan, 2006), and yet there are indications that these degrees will still carry signaling function in the Indian engineering labor market and will be considered as a separate ensemble from the private Indian engineering colleges. Thus, foreign degrees, even when not from top-tier foreign colleges, are not used cars. Having identified and characterized a source of market failure, we can set forth public policies to rectify that market failure, thereby mitigating the societal problems of low quality engineering education proliferation and leakage of talent. Before we do so, we must establish the normative model to be achieved. The Indian constitution lays down normative principles for governance, identifying social, economic, and political justice; liberty of thought, expression, belief, faith, and worship; and equality of status and of opportunity as several goals for which the republic was formed. Often, however, these normative principles are at odds; for example, regulations that promote equity in access to engineering education through quotas for traditionally marginalized groups (backward classes, scheduled castes, and scheduled tribes) act to reduce the liberty of private educational institutions. Among the arguably conflicting

normative principles promulgated in the constitution of India, in our analysis we will take

economic justice as primary. Asymmetries in information not only lead to economic inefficiency (Viscusi et al., 2005), but are also objectionable to the principles of economic justice. A just economic system should allow parties to have knowledge of the goods and services that they are dealing with. Thus we suggest public policies that would rectify the identified market failures due to information asymmetry. Akerlof (1970) suggests that several institutions arise to counteract the effects of quality uncertainty. The first that he mentions is the use of guarantees and warranties. Unlike in the market for consumer products, it seems rather unreasonable to offer guarantees or warranties in the educational market. Brand names and chains may also arise to correct quality uncertainty problems. Since engineering education is typically a one time purchase, the threat of curtailing business is not particularly credible, thereby limiting the utility of brand names. Establishing chains of engineering colleges might work, but again seems rather difficult. The most viable option for correcting the market failure seems to be reestablishing the certification property of the engineering degree. Imposing government regulations on the certification of the engineering degree is most warranted. In fact, there is already an existing procedure for the approval and accreditation of engineering colleges in India. The problem is that this approval and

accreditation process does not seem to set a sufficiently high standard which yields a credible signaling mechanism. Let us investigate this institutional failure. The All India Council for Technical Education (AICTE) was vested with statutory powers by an Act of Parliament in 1987 with the mandate to organize, plan, and administer technical education in the country. Note, however, that the IITs are outside the purview of the AICTE (Ramachandran, 2004). The AICTE approval process for new institutions or new degree programs is based on several criteria including the credibility of the institutional management and program providers; assurance of compliance to AICTE norms and standards; approval by the state government; and market sensitivity of the program output, so as to avoid the imbalance of supply of qualified manpower. Beyond AICTE approval, there is a further process of

accreditation by the National Board of Accreditation (NBA), which is supposed to have higher standards. NBA accreditation of programs is based on the demonstrated capability of the

institution and program to adhere to the qualitative criteria for accreditation and an assessment by experts through institutional visit. There are several qualitative criteria on faculty, facilities, students, industry interaction, and other such things. In particular, the NBA criterion on faculty

and staff states that, The faculty strength, cadres, qualification and level of competence and performance should be adequate to accomplish the institutional mission and goals. The qualifications of the faculty relevant to the programme area are generally measured by the advanced Degrees held by them, and their scholarship, creative activities and professional experience (Manual of Accreditation, 2004). As noted by U. R. Rao, who led a commission in 2004 to study the state of Indian technical education, Now, although accreditation has been mandatory, less than 5% of the institutions have been accredited! Unfortunately, there is no upper limit on how long an institution can wait to seek accreditation. There are institutions that are more than 25 years old that do not enjoy accreditation! (Riti, 2004). As Rao suggests, this institutional failure must be rectified, and all institutions must be forced to seek accreditation as soon as possible. Moreover, engineering colleges should be re-accredited after some fixed interval of time to prevent the atrophy of quality. Engineering colleges that do not meet the accreditation criteria should be closed by regulatory fiat. This regulatory policy assumes that the accreditation process will only accredit colleges that meet the ascribed standards. We investigate whether the NBA criteria set forth in the Manual of Accreditation are met by colleges that have in fact been NBA accredited, focusing on the qualifications of faculty criterion quoted above. If the criterion is taken at face value, there would seem to be a requirement of faculty that hold advanced degrees. The Hindustan College of Science and Technology, Mathura, U. P., is accredited by the NBA for the following programs: B.E. in Computer Science & Engineering, B. E. in Electronics & Communication, and B. E. in Mechanical Engineering. Table III shows the listed faculty in the Department of Computer Science & Engineering. The Motilal Nehru Regional Engineering College, Allahabad, U. P., is accredited by the NBA for the following programs: B. E. in Computer Science and Masters in Computer Applications. Table IV shows the faculty of the Department of Computer Science & Engineering. The JSS Academy of Technical Education,

Noida, U. P., is accredited by the NBA for the following programs: B. Tech. in Electronics & Communication Engineering, B. Tech. in Mechanical Engineering, B. Tech. in Computer Science & Engineering, and B. Tech. in Electrical Engineering. Table V shows the faculty of the Department of Computer Science and Engineering. These three tables are summarized in Table VI.

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Name Mr. Suneet Gupta Mr. Jagadeesh G. Mr. A. Senthil Ms. Sarika S. Khandelwal Ms. Lavanya Narasimha Rao Mrs. Nilima P. Fulmare Mr. Ajay Kr. Singh Mr. Samik Tiwari Mr. Vijay S. Katta Mr. Raj Kumar Singh Mr. Prateek Srivastava Ms. Nidhi Agrawal Mr. Sudeep Pandey Mr. Sushanta Narayan Padhi Mr. Law Kumar Singh Ms. Rashmi Singh Ms. Ankita Singh Mr. Bablu Pandey

Rank HOD I/C Lect. Sr. Lect. Sr. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect.

Degree Qualification M.Tech. M.Tech., B.E. (Comp Sc.), P.G.D.S.M. B.E. (Comp Sc.) B.E. (Comp Sc.) B.E. (Comp Sc.) B.E. (CSE) B.E. (CSE) B.Tech. (CSE) B.E. (CSE) B.Tech. (CSE) B.Tech. (CSE) B.E. (CSE) B.Tech. (CSE) B.E. (CSE) B.E. (CSE) B.Tech. (CSE) B.Tech. (CSE) B.E. (CSE)

Table III. Faculty of Department of Computer Science & Engineering, Hindustan College of Science and Technology, Mathura, U. P. Data obtained from Hindustan College of Science and Technology (http://www.sgei.org/facultyHCST.htm).

Name Prof. Gulab Singh Prof. Krishna Kant Prof. A.K. Mishra Dr. (Mrs.) S. Agarwal Mr. Manoj Madhav Gore Sri Rajesh Tripathi Sri R.S. Yadav Sri Anil Kumar Singh Sri Dharmendra Kr. Yadav Sri Rajesh Kr. Singh Sri Shashi Kant Gautam Sri S. Anand Kumar

Degree Qualification Ph.D. Ph.D. Ph.D. Ph.D. M.E. B.Tech. M.E. M.C.A. B.E. B.E. M.C.A. M.E.

Table IV. Faculty of Department of Computer Science & Engineering, Motilal Nehru Regional Engineering College, Allahabad, U. P. Data obtained from Motilal Nehru Regional Engineering College (http://mnrec.nic.in/html/computer_science.html).

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Name Prof. P. S. Gill Mrs. Poornima Mehta Mrs. Seema Shukla Mrs. Jyoti Ms. Jyoti Shukla Mr. Naveen Kr. Jayant Mr. Neeraj Kr. Awasty Mr. Nitin Kr. Saran Mrs. Pratibha Singh Mr. Birendra Kr. Verma Ms. H. Sudha Ms. Meetika Agarwal Ms. Sowmya Arun Mr. Vivek Kataria Ms. Naina Ms. Deepti Sharma Mr. Krishnanand Chaturvedi

Rank Prof. (HOD) Asst. Prof. Sr. Lect. Sr. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect. Lect.

Degree Qualification B.E., M.E. B.Tech., M.Tech. B.Tech., M.Tech. B.E., M.E. B.Tech., M.Tech. B.Tech., M.Tech. B.Tech. B.Tech., M.Tech. B.Tech. B.Tech. B.E., M.E. B.E., M.S. (IT) B.E. (IS) B.E., M.Tech. B.Sc., M.Sc., M.Tech. B.Sc., M.Sc., M.Tech. B.Tech.

Table V. Faculty of Department of Computer Science and Engineering, JSS Academy of Technical Education, Noida, U. P. Data obtained from JSS Academy of Technical Education (http://www.jssaten.ac.in/departments.html).

Engineering College Hindustan College of Science and Technology Motilal Nehru Regional Engineering College JSS Academy of Technical Education

Bachelors 16 3 5

Masters 2 5 12

Doctorate 0 4 0

Table VI. Highest degree qualifications of faculty at three departments of computer science and engineering with NBA approved degree programs.

As can be observed from Table VI, there is a great disparity among the degree qualifications of the faculty at the several engineering colleges. All of the listed colleges have faculty members that do not hold advanced degrees; in fact only 11% of the Hindustan College of Science and Technology faculty hold advanced degrees, and none hold doctorates. Similarly, none of the faculty at the JSS Academy hold doctorates. Since the colleges do not appear to meet the NBA standards, and yet they are NBA accredited, it does not appear that the NBA criterion on faculty and staff for accreditation is being applied in any meaningful manner, suggesting another level of institutional failure. We can see from (p. 215, Annual Report 2005 06) that the Accreditation process of institutions was expedited by the AICTE. During 2003 2004, 409 programmes were accredited where as during 20042005, 570 programmes were

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accredited. For the year 20052006, 279 programmes have been considered for accreditation. Perhaps this expedited accreditation process is leading to the institutional failure. A bureaucratic solution to reduce the apparent failure of the accreditation process is simply to slow down and improve the assessment of the standards. Although there are regulatory mechanisms in place to rectify market failures, these regulatory mechanisms suffer from institutional failure. Thus the public policy that we suggest is to simplify require not only AICTE approval but also immediate NBA accreditation, with frequent re-accreditation. Furthermore, when the NBA accreditation is carried out, the NBA Manual of Accreditation should be followed. Once the regulatory mechanisms are executed, it seems that the market failures will be mitigated. The information asymmetry problem will be reduced, since NBA accreditation will signal quality in the labor market, thereby reducing quality uncertainty in the education market. Thence, the proliferation of low quality engineering education will be mitigated, as regulation will not allow such low quality products to appear in the market. Once the quality of engineering education in India increases to a suitable level, the flight to foreign engineering colleges should also subside, thereby solving the two major social ills associated with adverse selection in the engineering education market.

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