Economics of Engineering Education

Now that it is my vacation, I have a lot of time to kill. So here goes another of my dumb blog. Only that this one is slightly academic or rather economics in nature. It is said that even a parrot could become a economist if only it could say two words: supply & demand !!!

The Tamil Nadu Engineering Admissions 2009 has drawn to a close. The number of vacant seats 30,550 !!! unbelievable isn't ? Out of the 1.14 lac seats that was up in the offing only around 83,500 was filled up. If this being the case for Government quota, I am pretty sure most of the management quota in self-financing quota would be unfilled.

So what explains this paradox? There are few case studies wherein supply exceeds the demand. The engineering education is one such among them. (there are also other examples like the civil aviation sector where currently the supply exceeds the air traffic demand, India's refining capacity is also greater than the current crude oil demand, making India a net exporter of refined petroleum products !!). So in all these case we have seen that it supply exceeds the demand it seriously sucks for the suppliers. For the consumers of course it is a bonanza time as cut throat competition ensures that the costs are un-sustainably cheap.

The diagram pictorialy explains this phenomenon. The downward sloping curve is the demand for engineering seats. The upward sloping curve is the number of seats up grab by the both government and private institutions. The instersection of the two is going to give us the cost of the education. (lets assume as annual tuition fees + costs)

One may wonder if both the number of seats available and number filled are a single point in the graph, why bother to draw to a curve? This is because of the concept of Willingness to Pay.
A more affluent student wouldn't mind paying Rs 62,500 per year (max management quota fees) provided he gets the good he wanted (i.e an engineering seat). So students like him would be on the upper reaches of the demand curve. Whereas a student from a poor family would find it difficult even to pay Rs 40,000 (govt quota fees). such students are bound to be in the lower reaches of the curve. (below the intersection in some cases). Likewise colleges could offer more seats than the current dispensation by increasing the strength or the number of courses. But they would be reluctant to do , if the intersection of demand curve is below their current intake capacity. (for the colleges the willingness to supply is the equivalent concept of WTP).

In this crowded market who is going to suffer? Economics tells us it is going to be the supplier i.e. technical institutions. As the number of colleges proliferate the students have more and more choices. In view of the increasing vacancies, the colleges are forced to reduce their fees (as teh demand curve falls down while supply remains constant). (the other day my cousin showed me an SMS ad for an engineering college seat with reduced fees !!! such is the pathetic state of engineering colleges !!!). As the tution fees falls , colleges cannot recoup the cost incurred in imparting the education.

This is where economics and practicalities differ. As the cost of educations falls it is teh students who are going to be affected as the result quality deterioration. So in a way both the colleges and the students are going to suffer if this current trend continues unabated.

AICTE must step up it reguations in this regard. In this competitive world we cannot afford to churn our second rate engineers. I did visit the AICTE guidelines on the starting new techincal institions. Officially all it is takes is a etsablished trust/society, with 25 acres land and 35 lacs Fixed deposit guarantee !!! Unofficially of course it involves greasing several palms in the State government, affiliating university and AICTE members. ( AICTE Chairman is under arrest by CBI on bribery charges ). So even if that is taken into account it takes only about 1 crore plus the land acquisition cost to start an engineering college !!! You can even start the building construction after getting the initial LoA. With relatively non-existent market barriers it is easy for every Tom, Dick and Harry to start a college. After all these individuals must park their black money somewhere, so why not start a college??

Too many cooks spoil the broth. The saying seems apt for TN engineering colleges. (I personally wish they could start some of these colleges in the North-east or Bihar/Jharkand/Orissa etc. where even colleges are non-existent). In 2009-10 academic year 85 new institutions cropped in TN alone !!! Perhaps they are yet to learn the simple lessons of supply v. demand !!!