पापा कहते थे बड़ा नाम करेगा, कोई इंजीनियर का काम करेगा?

papa kehte hain

An education entrepreneur, I used to once know, liked the idea of offering MBA courses at various price points.

If someone can afford to pay Rs 1 lakh, we should charge him Rs 1 lakh. If someone can afford to pay Rs 7 lakh, we should charge him Rs 7 lakh,” was the basic argument he used to make (I am paraphrasing here).

His justification for it was fairly straightforward. “Hindustan Lever Ltd (now Hindustan Unilever Ltd) sells Lifebuoy. It also sells Lux,” he used to offer as a way of explanation of different price points.

And he wasn’t just a speaking type. He acted on what he said and had different business schools offering an MBA at various price points. Another peculiar feature of this entrepreneur was that he opened and shutdown business schools depending on how good the economy and in turn, his business was looking.

So, if he felt, that in the coming years, the demand for business school education would drop, he would not hesitate in shutting down a few business schools as well. That way he had a control over costs and at the same time there were no seats going around vacant in the years to come.

Now imagine what it did to the morale of students who had just passed out? Having studied at a business school, which had already shut down. Of course, the entrepreneur wasn’t running a charity, he was simply running a business which was responding to supply and demand, like every other business does.

And that is how he operated, until he had a run-in with the education authorities and had to scale down his operations dramatically.

Having said that he had a reasonably good record in shutting-down business schools just before the demand for business school education fell. At least, that is what the old-timers who had worked with him for a long period of time, used to say. This primarily was a function of the fact that most of his business schools operated out of a few floors of rented buildings and did not have a campus, so to speak.

The same cannot be said about many entrepreneurs who in the last few years set up engineering colleges, to cash in on what they thought was an education boom. But as happens in case of many bubbles, by the time the supply of the new engineering seats hit the market, the demand for engineers had already started to slowdown and in the years to come things only became worse.

Given the fact, that many of these engineering colleges were set up by politicians, the All India Council for Technical Education(AICTE) went easy on approving these institutions. For politicians, establishing engineering colleges, on cheap government land, was a good way of putting their ill-gotten black money to use.

Also, once the college was in place, the hope was that the management quota seats, would keep bringing in the black money. Hence, education made for a great business model. The key assumption here was that the demand for engineers in information technology companies would keep exploding. Of course, the model also worked on the assumption that an engineering degree would continue to be aspirational for the middle class and the lower middle class households.

And all this made for an excellent business model, or so people thought. Nevertheless, this wasn’t rocket science exactly and many people had figured it out, including, you, me and our mothers. It’s just that we didn’t have the money or the political connections to execute it, like the politicians did.

As Philippa Halmgren writes in Signals—How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy: “Whenever the majority of the population seeks to pursue the same idea at the same time, it usually ends in tears. It is a sure sign of trouble when 85 per cent of business school graduates want a job in the financial markets.”

And it is a sure sign of trouble when many politicians want to set up engineering colleges and many prospective students want an engineering degree which gets them a job in an information technology company.

The number of engineering seats exploded from around 5 lakh in 2005-2006, to 10 lakh in 2009-2010 and to more than 15 lakh, currently. India produces more engineers than the United States and China, put together. Given this, it isn’t surprising that many of these engineering seats are going vacant.

Take the case of Maharashtra which has 1.35 lakh engineering seats. Newsreports point out that around 51,000 seats went vacant this year. That is around 38 per cent of the total seats. In Tamil Nadu, close to 1.19 lakh seats in engineering colleges found no takers. Tamil Nadu has the highest number of engineering seats in the country at around 2.79 lakh. Maharashtra comes in second.

In Karnataka, another state, known for its obsession with the engineering degree, 15,561 engineering seats found no takers. I can go on state by state, but the results will nonetheless remain the same. There is a surfeit of engineering seats across the country.

In fact, as the government recently told the Lok Sabha, “overall there is surplus capacity in the engineering sector with 8,44,328 seats remaining vacant in 2014-15.” The surplus capacity does not mean that the competition to get into an engineering college has become any easier.

While, the number of seats may have exploded, the number of good colleges continues to be few and far between. In fact, various studies over the years have found that a majority of Indian engineering students are unemployable. A recent study carried out by Aspiring Minds found that 80 per cent of the engineers who graduated in 2015, were unemployable.

This isn’t surprising given that starting an engineering college by acquiring the land and putting up buildings, is the easiest part of the job. What an engineering college (or for that matter any college) requires are good teachers. And there is a clearly a huge shortage of even half-decent teachers going around.

Having taught and studied at private colleges (MBA and journalism) I can vouch for the fact that they are extremely poor pay masters, once we take into account the kind of fee that they charge to their students.

There have been gainers out of the entire process as well. And these are the information technology companies. With the number of engineering colleges exploding, the starting salaries in these companies has more or less remained the same, over the last few years.

Also, the AICTE after allowing the establishment of all these colleges has now plans of shutting them down. As Anil Sahasrabudhe, chairman of the All India Council of Technical Education (AICTE), told Mint in September 2015:We would like to bring it down to between 10 lakh and 11 lakh (one million and 1.1 million) from a little over 16.7 lakh now.”

And that is how government institutions operate. First they create the problem and then they think they will be able to solve it, by simply shoving it away. The good thing is, at least in one area in India, the market is doing a good job of cleaning up the mess that prevailed.

The column was originally published in Vivek Kaul’s Diary on August 17,2016

Why engineers and MBAs become sweepers and peons


The news of thousands of engineers and MBAs applying for low-level government jobs like that of a sweeper or a peon, makes it regularly into the media.
Very recently, the municipality in Amroha in Uttar Pradesh advertised for 114 posts of safai karamcharis or sweepers. They received 19,000 applications. Many of the applicants were engineers and MBAs.

There are multiple reasons for this phenomenon. Lower-level government jobs are much better paying than comparable jobs in the private sector. The salary differential can easily be two to three times. And this leads to many people applying. Like in the case of Amroha, 19,000 applications were received for 114 posts.

Further, we are producing many more engineers and MBAs, than are possibly required. Also, the quality of many engineers and MBAs is suspect and given that such individuals have no other option but to downgrade as far as the choice of job is concerned.
Actually this needs some more explanation.

Allow me to explain using the example of ants. Ants do what other ants are doing. As John H Miller writes in A Crude Look At the Whole: “If an ant encounters a lot of other ants returning with food, she too will go out and gather food. If food is plentiful, it will be easy to find and ants will return faster with food. That will encourage other ants to seek food as well. If food is scarce or if there is a predator about, few ants will return with food.” 

If few ants are returning with food other ants will not go out venturing for food and hence, not encounter the predator. Hence, ants doing what other ants are doing leads to productive behaviour for the colony of ants, most of the times.

But sometimes this is precisely what leads to trouble. As Miller writes: “That is not to say that blindly following a rule will always be optimal…Unfortunately, such a strategy can sometimes fail when a line of army ants inadvertently begins to follow its own trail, forming a circular mill that, with time, ends badly for all involved.” The ants keep going in the circle, till they die.

Now what has this got to do with engineers and MBAs wanting to become sweepers and peons? The question to ask here is why do people want to become engineers and MBAs? The answer lies in the fact that they (or their parents) know someone who got an engineering or an MBA degree and did pretty well for himself. Their friends, relatives, cousins, neighbours etc., also plan to do an engineering or an MBA or have already got a degree.

Now these friends, relatives, cousins, neighbours etc., want to get an engineering or an MBA degree because their friends, relatives, cousins and neighbours are also doing the same. In the process such individuals (and their parents) like ants end up in a circular mill following the people around them. This leads to huge demand for engineering and MBA degrees.

Of course, there is only a limited number of seats going around in good engineering and MBA colleges. In the process, the individuals end up at a bad engineering or an MBA college, and in many cases both, as they try to wipe out the ill-effects of a bad engineering degree by getting a bad MBA degree.

Of course, smart entrepreneurs have cashed in on this phenomenon over the years by either increasing the number of seats in their colleges or by starting new colleges. The trouble is that the teaching as well as infrastructure in many such colleges is not up to the mark. This leads to a situation where these engineers and MBAs are unemployable in companies and have to start looking for jobs which are much below the level than they had hoped for.

This in extreme cases leads to them applying for low-level government jobs of peons and sweepers. Given India’s population, even if a small proportion of people do so, the absolute numbers look very big. And that’s the sad part.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])
The column originally appeared in the Bangalore Mirror on March 2, 2016

Why post graduates and PhDs want to be peons

At a recent literature festival two well-respected veteran journalists were a part of a discussion. During the course of the discussion one of them said that he was travelling through Bihar recently, in the run up to the state assembly elections held in October and November, earlier this year. And he was surprised to know that in Bihar a job actually means a government job. To this the other senior journalist added that it means the same in other parts of the country as well.

This at a very basic level explains the fascination a large part of India has for government jobs. It is another extension of what we like to call a mai-baap sarkar.

In fact, over the years, reports have regularly appeared in the media about people with post graduate degrees, engineering degrees, MBAs and even PhDs, applying for jobs at the lowest level in the government.

Take the recent example from Uttar Pradesh. For a 368 posts of grade IV staff (peons) at the state Secretariat, the Uttar Pradesh government received 23.25 lakh applications. This included around 250 PhDs, 25,000 post graduates and 1.52 lakh graduates. “If we start interviewing such large number of applicants, it will take more than two years to complete the process,” a state government official told The Indian Express.

If 23.25 lakh people are applying for 368 jobs, it clearly shows the sad state of job creation in the state of Uttar Pradesh. What is even more surprising is that people with good degrees have applied.

Nevertheless what happened in Uttar Pradesh is not an isolated example and has been happening in other parts of the country as well. Take the case of Rajasthan University which sometime in 2011 wanted to employ 15 peons. It got 3000 applications for it. The Vice Chancellor of the University told NDTV that the university had received applications from: “candidates who’ve done PhD, MPhil, MBA and Msc…We are really surprised to get applications from such highly-qualified people.”

Or take the recent case in Chhattisgarh where 75,000 applications were received for 30 posts of peons in the Directorate of Economics and Statistics of the Chhattisgarh. The applicants included post graduates in arts and sciences and engineers as well, a news-report said.

What explains this trend? Lack of jobs is one answer. The fascination for government jobs and the job security that comes with it, is another. The fixed hours that government jobs have to offer is another possible reason. But there is a fourth answer to this as well. At lower levels, the government jobs are much better paying than the private sector. And there is data to back it up.

As the Report of the Seventh Pay Commission points out: “To obtain a comparative picture of the salaries paid in the government with that in the private sector enterprises the Commission engaged the Indian Institute of Management, Ahmedabad to conduct a study. According to the study the total emoluments of a General Helper, who is the lowest ranked employee in the government is Rs 22,579, more than two times the emoluments of a General Helper in the private sector organizations surveyed at Rs 8,000-9,500.”

Hence, the IIM Ahmedabad study “on comparing job families between the government and private/public sector has brought out the fact that…at lower levels salaries are much lower in the private sector as compared to government jobs.”

This explains why so many people end up applying for jobs of peons with the government. The economic incentive is at work. It also explains why so many people with degrees end up applying for low-end jobs with the government. Over and above the salary, any money from corruption can also be added to the kitty.

Further this is not a recent phenomenon and has been at work for a while now. As Professor R Vaidyanathan of IIM Bangalore put it in 2008: “Most of the discussion on the emoluments of the government employees focuses on the senior level positions like that of Secretary etc. But more important is the positions at the lower end of the hierarchy. There was an interesting news item sometime ago about there being over 11,000 applicants for just three posts of peons advertised by the Haryana Electricity Regulatory Commission.”

So what is happening in 2015 was also happening in 2008. As Vaidyanathan writes: “This is hardly surprising considering the lower the category of position in government the larger is the number of aspirants. The salary and perks in government are significantly higher than those of the private sector at the lower levels. Reports suggest that post-implementation of the Pay Commission report [the Sixth Pay Commission i.e.], the lowest-level worker will get more than Rs 10,000 per month as pay. In the private sector, a peon or similar-category position might fetch around Rs 3,000 or at best Rs 5,000. An important consideration is the hours of work involved.”

Another point that needs to be discussed here is that we are producing many more engineers and MBAs than can be possibly absorbed in adequate jobs. As Akhilesh Tilotia writes in The Making of India: “An analysis of the demand-supply scenario in the higher education industry shows significant capacity addition over the last few years: 2.4 million higher education seats in 2012 from 1.1 million in 2008.” In 2016, India will produce 1.5 million engineers. This is more than the United States (0.1 million) and China (1.1 million) put together.

The number of MBAs between 2012 and 2008 has also jumped to 4 lakh from the earlier 1 lakh. Also, the quality of many of these engineers and MBAs is not up to the mark. As Tilotia writes: “India faces a unique situation where some institutes (IITs,IIMs, etc.) are intensely contested while a large number of the recently-opened institutes struggle to fill seats…With most of the 3 million people wanting to pursue higher education now having an opportunity to do so, the big question that should…be asked…are all these trained personnel required? Our analysis seems to suggest that India may be over-educating its people relative to the current and at least the medium-term forecast requirement of the economy.”

And this to some extent also explains why people with good education degrees apply for jobs of peons.

The column originally appeared on The Daily Reckoning on December 9, 2015

Dear parents, the engineering bubble has burst

In my extended-family when a kid grows up, the parents push him towards getting an engineering degree. If I may generalise a little more this is largely true for the Kashmiri Pandit community my parents belong to.

Once a youngster gets into an engineering course, all is forgiven and it is automatically assumed that the future will now be bright. And this may have been largely true for the nineties and the noughties, when India’s information technology companies were taking off. But now we are in the teens and the story has changed.

Why? The “indifference principle” is at work. As Steven E. Landsburg writes in The Armchair Economist: “Unless you’re unusual in some way, nothing can ever make you happier than the next best alternative.”

Landsburg explains the indifference principle through an example. As he writes: “Would you rather spend a bright summer day at the shopping mall or the…Fair…If the Fair is more fun than the mall, people flock to the Fair, building up the crowd size until it’s not more fun than the mall.”

So, the Fair doesn’t remain fun anymore because way too many people turn up. Something similar has happened to the engineering degree in India. The country is producing way too many engineers. As analyst Akhilesh Tilotia of Kotak Institutional Equities writes in a recent research note titled How many graduates are required to change a light bulb?: “Engineering graduate output of Indian universities stood at 15 lakh a year in FY2015 [the period between April 1, 2014 and March 31, 2015], up from 3 lakh in FY2005 [the period between April 1, 2004 and March 31, 2005].”

Hence, over the last decade, the number of engineers being produced has gone up five times. In fact Tilotia in his book The Making of India writes: “India in 2016 will graduate more engineers annually (1.5 million) than China (1.1 million) and the United States (0.1 million) combined.” One impact of so many engineers being produced is that it has “reduced the importance of ‘capitation fees’”.

Nevertheless, the trouble is that the employment opportunities for engineers haven’t gone up at the same speed. Information technology companies which were taking in a bulk of the country’s engineering graduates, aren’t recruiting at the same pace as they were in the past. As Tilotia points out: “net hiring in the IT sector has remained stagnant at 2.5 lakh [per year] over the past five years until FY2015”.

In fact, if we leave out the individuals recruited by the BPO sector from these numbers, the number of employees recruited by the information technology companies in the financial year ending as on March 31, 2015, stood at 2.09 lakh. The number of engineers produced, as mentioned earlier, stood at 15 lakh. Hence, there is a clear disconnect between supply and demand. The engineering dream to prosperity has clearly broken down.

The fascination of Indian parents for pushing their children towards getting an engineering degree has been built on hearing too many “success stories” of Indian engineers working in information technology companies in the United States on dollar salaries and other parts of the world.

Even those Indian engineers who have settled in the country and started working for the information technology companies in the nineties and up to the mid noughties, have done well for themselves. And these success stories have had a lot of impact on the thinking of parents.

The trouble is that the story has changed. As Tilotia writes: “IT companies have publicly stated that they are looking to automate meaningful parts of service offerings…Automation of workflow can significantly impact the prospects of entry-level joinees – their work is more susceptible to being automated.” Nevertheless, stories take a long time to unravel.

To conclude, as Landsburg writes: “In order for one activity to make you happier than another, you must be unusual in some way.” Hence, dear parents, the engineering bubble has burst. And as far as children go— please let them be!

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared in the Bangalore Mirror on August 5, 2015