We have come a long way...

Not so long ago, the RBI and the government were cutting rates. And they were met with vociferous opposition. The opposition, the Left parties, trade unions and even sections within the ruling parties opposed the move. What about the common man who is a saver it was asked, what about retirees who depend almost exclusively on interest income was asked, the actions are purely meant to benefit the corporates and big businesses it was alleged.

The change from those days to today, could'nt have been more stark. Now, we are currently in the midst of rising interest rates and voila, the government is now being pressured to 'not' raise rates. Because the rising rates have hurt the 'common man' as his EMIs on loan's increase. The criticism has come from within the ruling party and apparently was so strong what government had to send advisories to PSU banks on getting board approvals for rate increases (rather than just routine decisions). Aside with this, there has been no welcome/praise for rate increases on the deposit side nor has there been no pressure to revise upwards rates on Post office savings schemes.

This is just an indication of how much water has flown under over the past 3-4 years and how we are moving from a saving oriented society to a 'relatively' more consumption driven. The definition of 'common man' earlier was that of a person who worked all his life, saved money - put that in FDs or Post office schemes, spent only when he had money etc etc. The 'common man' currently is someone who has a housing loan, a car loan, a personal loan, someone who goes to Big Bazaar's or Shopper Stop's of the world every other weekend etc etc etc.

And this is no cyclical change in response to lower interest rates or robust economic growth (read: higher salaries and higher employment) - its a structural change and one that has still got a long way to play itself out to full extent.

That's it for now....

Scarcity no indication of quality

Telephone's were a scarcity few years back. Getting a telephone connection meant that you needed to wait for a few years. The same was true for car's, scooters, even to get government approvals. That indicated that there was scarcity and by implication there was a value (read: status) associated with it due to it. But no one would claim that those products or services were of particularly high quality.

Yet we seem to do precisely that with IITs, IIMs or AIIMS etc. Yes, these institutes are scarce and so there is a value (status) associated with that. But that is no indication of quality. The other day I was going through the interview of some IIT alumnus returning from US and he was saying how IIT entrance tests the conceptual knowledge of students and how only the best of the best students are selected and hence though more than 100,000 students apply only a fraction of them are selected - what crap.

My answer is simple, quality has two connotations - absolute and relative. Yes, on relative parameter, I am ready to accept that out of the sample available to them, they select the better one's but what on absolute level? If the IITs have to fill up 4000 seats, is it their claim that every year they manage to find exactly 4000 extremely bright (very bright) students? It may be that the first student to get into IIT is bright (very bright), but what about the last? Do they stop filling seats (keep seats vacant, if in a particular year, the crop is not quite upto standards?). And what about the first person to get rejected? Is he necessarily below their entry standards? A true test of the quality of students is an absolute criteron.

Let these institutes say that we have a particular benchmark (entry criteron) - anybody and almost everybody who crosses that gets in, rest are out. That is a far better measure of the quality of students (at least at entry level).

A good example of how this sort of system might work are the professional courses run by the Institute of Chartered Accountants or Cost and Works Accountants or Company Secretaries of India. Anyone can go and register - no limit on who can register. A set of very tough and demanding exams (mostly 3 exams - one at entry stage, one intermediate and one final) is what you need to pass to get certified (a measurable and fixed criteria for deciding who passes and who does not) and anyone and everyone who passess this exam gets certified. Thus once you control the quality of these exams, you automatically ensure the quality of students and quality of final output.

That's it for now...

The MBA 'bhoot' is in full ascendancy

Over the past week I had been to visit my cousins. Now one of them is about to graduate and he wants to do an MBA - why? well, apparently if you do an 'MBA' then you make a lot of money, while if you do not then you probably do not! I am amazed. It took me a great deal of persuasion to talk my cousin out of this thought and show him the true picture of the 'MBA' phenomenon.

I had a strong belief that the MBA bhoot as I call it, was fairly widespread - but was amazed to see it in reaility. Being a part of the MBA fraternity I shouldn't be the one to spill the beans - but thats exactly what I am going to do. So here are a few MBA myths busted:

• 'MBA' is all that matters - Its not MBA that matters is 'MBA' from where that matters. So frankly, doing an MBA from only the top 10-12 colleges is what would make a difference, rest all is frankly - crap.
• 'MBA' pays you high salaries - True MBA gives you good salary (for most colleges), better than what most graduates might get otherwise, but what is often forgotten are the costs (explicit and implicit) that go in to getting that degree. Most colleges charge anywhere from between 1.5-3 lakhs per annum for an MBA course, so over a 2 year period that amounts to 4-6 lakhs (and this figure is increasing at 15-20%) per year. Add to this the opportunity cost of not working for 2 years (this includes both the salary and the experience) and the interest and the total comes to around 8-10 lakhs. That's a huge investment - and you need to compare the returns (that is incremental salary and growth prospects) with this investment. On doing this most people will find that they don't break even till well in their 30s (even assuming you complete MBA before 25) - not that attractive a proposition isn't it?
• MBA salaries are high, even for not so reputed colleges - This is the biggest misconception. MBA salaries are high, but not as high as they are made public. Almost all colleges 'massage' (I do not want to use the word fudge, although that might be an appropriate word) their average salary figures. The figures stated publicly are way above what are actual figures. And since all colleges do it, no single college can back out and publish the 'true' numbers - because, the game is all about salaries!

But, I do not think this bhoot is coming off any time soon. Partly, because students and parents do not want to believe what I said above (if what you are saying is true, then how come so many students are doing this course? is a question I got repeatedly from my cousin and his parents). That's sad and yet not surprisingly. If you are into financial markets then this is the sure shot sign of a bubble - when people start justifying their actions based on what the others (read: crowd, herd) are doing.

But other than that there are serious forces at play to ensure that this bubble sustains itself for longer and longer and longer.

• Firstly the colleges itself want more and more students to apply. Every college charges about 1000 rupees per application. Given that more than 160,000 students appeared for CAT last year -thats an annual revenue of a cool 16 crore (and growing at more than 12% p.a) and similarly for other colleges. eg. My college got about 17000 applicants couple of years back - that gives them a revenue of 1.7 crores - a tidy sum (the costs attributable to this revenue stream are essentially fixed in nature).
• Further, this tide of applicants allows the colleges, media, coaching classes, 'career counsellor's' to attach scarcity value to the degree. A scarcity value is apparently an indication of difficulty of the exam/callibre of students who get in. Well, to an extent - but getting thousands of students to write this exam who otherwise should not - does not make the exam any tougher nor does it make the students who take the exam any brighter!
• The coaching classes for the entrance exams for have an incentive in getting more and more students signed up for the test and by implication their classes. And the classes do not care what students sign up, as long as students keep on signing up - their cash registers are ringing. These classes will chase you - call you, write to you, invite you to seminars and tell you that how with hard work you can crack the CAT - if only that were the case, I could play cricket for 24 hrs a day and become Sachin Tendulkar.
• Next in line is the media, which will trumpet the salary figures post final placements. It will spend entire day (news channels) on how top notch companies pay ridiculous amounts of salaries to Indian MBAs and other crap.

So, in conclusion - this MBA bhoot is about to get bigger before it blows. But blow one day it sure will. Look at what happened to the 'Engineer' bhoot. Once upon a time, a child growing up had to become an engineer and he was assured of a comfortable life - materially. Well, no its no longer engineering that matters (and even parents and students understand this) is what stream, what college and how well you did there. So the discrimination between colleges is underway. That will happen with MBA also (it is currently restricted to only the people in the 'loop'). Till then lots and lots of families will spend lots and lots of money and get lots and lots of nothing from that investment.

That's it for now....