Sunday, October 25, 2009

Economic return of investing in Excellence in Education

ISB Hyderabad's first class started on July 1, 2001 and it was established at a budget of Rs 200 crores and a new campus is being setup at Mohali with a budget of Rs 300 crores. ISB is scheduled to enhance its intake to 600 for the academic year 2010.Even in the current difficult economic environment, ISB had a good placement record adding an average of Rs8lakh to the existing CTC per student. Given that this was about 25% lower than the previous year owing to the recession,one can safely assume that ISB will continue to add Rs 10lakh to the existing CTC per student in perpetuity.By their very nature, the capabilities of a knowledge institution only improve with time and hence would likely add more value per student going forward.
Thus,ISB is contributing a minimum economic value of Rs 60crore(600 X 10lakh) per year.If we assume a life of 100 years(though good Institutions are known to last many centuries) for this Institution, a fixed investment of Rs 200 crore gave a return of Rs 6000 crore,an astounding 300 times. Can any venture capital fund gives this much assured return? Government of India, although did not contribute in this endeavour, by way of financing, will get Rs2000 crore as Income Tax only.What other asset class gives this much assured return?
And these are just monetary returns.The value added like executive education, manament development programs, research, conferences and incubation of startups cannot be quantified. The returns that society get from the intellectual capital added and the leadership role these invididuals will play are immeasurable.Is there any better public service other than promoting excellence in education?
ISB, here, is just a template and can be replaced with any institute of excellence be it IISc for Science, IITs for technology or AIIMS for Medicine.Despite the benefits that excellence in education entails,such endeavours continue to face delays such as this.

A related link describes GoIs intended investment in Institutes of Excellence. But this is not enough. Private sector needs to pitch in a big way. What we should have at the very least is to give 100% Income Tax exemption to any contribution to any Institute that meets the crietrion of excellence.


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  2. Shouldn't we consider the running costs & the high fees paid? Wouldn't it make a difference?

  3. Sure,running costs and high fees paid can be considered and so can the opportunity cost of foregoing salaries. The running costs are cancelled by fee paid though. What is also important to note is that these are very conservative estimates. The intellectual value added and returns generated in form of salaries over the lifetime for an individual are likely to be much more than estimated here. Note that non core educational programs,trainings, research projects and consulting do augment running costs and add productivity to the economy. These can more than offset the variable costs.
    Having said that, this is not a 'precise' analysis but is generally correct neverthless. In keeping with the motto of this blog: 'Better be roughly right than precisely wrong'. One can surely create a model of 20% increments per annum over starting salaries,10% increase in starting salary,5% increase in capacity,7% increase in running costs or fee and getting a net present value of that and come with a wonderful rigourosly arrived at number that sounds more expert like.

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