Is the cost of an MBA degree justified?

Like all people of a certain age, I am prone to thinking that ‘life was easier when I was young’. But unlike those who generally mean this statement to refer to the time when they were kids in half-pants running like the wind through toddy fields or whatever, I am referring to a far more recent period of my life – the time when I was applying for my MBA degree.

Why was it easier? Well, money, mostly. Back then, the IIM’s cost around 3 lakhs in tuition fees for the full-time (2 year) course, sometimes less, depending on which campus you got into. Colleges like NMIMS (Mumbai), SP Jain (Mumbai), XLRI (Jamshedpur) and MDI (Gurgaon) were in the same range. Even the most expensive business schools like ISB (Hyderabad) still did not charge more than 5 lakhs in fees. And then of course there were the heavily-subsidized outliers – JBIMS (Mumbai) and FMS (Delhi) which had exalted reputations despite their fees being under 1 lakh.

The promise of a job at the end of that period was pretty much secure – Top B-schools claimed a 100% placement record, and average salaries that were comfortably more than twice the fees being paid were published in college prospectuses.

Whether the realities of business school were quite as rosy is a subject best dealt with in a fictionalised account, just as Chetan Bhagat did with the IIT’s in Five Point Someone. But by and large, the promises were redeemed. For the majority of students who did get into an elite B-school, the career objective, whether it was simply an acceleration of the growth path, or a change in field (the vast numbers of engineers looking for jobs in the Finance industry was a testament to this), they got what the wanted. So back then, the equation was pretty simple – if you get admission into one of India’s top 15 or so colleges, go for it, blindly.

Today, when a young aspirant seeks my advice on going in for an MBA, I have to be much more guarded in my response.

What has changed in the intervening decade?

Fee inflation stands as the most obvious factor. IIM’s charge almost Rs. 11 lakhs in fees today. Other colleges (apart from those two outliers mentioned already, FMS and JBIMS), have also upped their fees almost as much. Factor in the cost of living (which varies from city to city, but can be comfortably taken to be a minimum of 2 lakhs over the two-year course period), and the outlay being looked at is pretty huge. The fees, then, have risen by a factor of between 14 to 15 % per annum.

Against this, have the salaries increased as much? The answer, sadly, is no. The global crisis of 2008 and the sustained slow-down in the Indian economy since 2011 has meant that salaries have remained relatively stagnant. Even assuming 14 lakhs as the average starting salary for a graduate from the better B-schools, the growth rate has been between 7-11 % only.

Now this is, of course, misleading to some extent. At the best colleges in India, the top 10 per cent of the students tend to get salaries that are astronomically higher than the rest. These skew the statistics upwards. At the same time, it means that an average salary cannot be held to be representative. Unfortunately, since Indian b-schools do not publish the Median of the salary packages, we do not have a better statistic to rely on.

Which brings us to the next factor – opportunity cost. More and more b-schools insist on a few years of job experience before getting admitted for a degree. This means an aspirant is not only spending money to get an MBA, he is also forgoing two years of salary for it. Add that in to your cost – and also consider that the average salaries graduates got in 2005 were generally those paid to those with 2 years or less experience, often to freshers, while currently the increased numbers relate to those with 2 to 5 (often more) years of working behind them.

And finally, let us not ignore the impact of expansion. Like any good commercial business, B-schools across the board increased the size of their intake. IIM classroom size has doubled over the years, and the elite non-IIM’s have also increased their intake by a factor of 50% at least. Apart from dilution of the classroom experience, this has made achieving placements a lot more difficult. With industry’s capacity for creating new jobs in the highly-skilled sector (to which MBA’s must belong) not having increased as much, it is often the case that while half the batch gets placed very quickly, the rest have to struggle for a job.

In short, the situation is not as rosy as it might be. But that is not to say that an MBA degree has lost its intrinsic value. It remains the best ‘generalist’ degree available. A good-quality business school can provide invaluable inputs to its students, should the students be capable and willing to put in a matching effort. Personality development, public speaking, and an understanding of group dynamics – these are lessons that are not taught at an undergraduate level in an effective way. Add to that the technical knowledge, work ethic, the long-lasting relationships that are built on a b-school campus, and it is undoubtedly true that an MBA degree is worth much more than just the job and salary package you get at the end.

My intent is not to dissuade an MBA aspirant at all. Rather, I wish to counsel caution. Keep your eyes open and take a calculated decision. If you have an admission into one of the elite b-schools, it is definitely worth favourable consideration. Maybe you want to change your field altogether, and for that the degree definitely can act as a catalyst. At the same time, not all campuses are equal. Sometimes the job you have might already have you on a strong growth path.

So life was easier when I was younger – but the youth of today need to think longer and harder before making the career-critical choice of whether or not to do an MBA.

Image Source

Disclaimer: This article has been written from a purely Indian perspective, and not factoring in the alternative of a foreign MBA degree, which requires a number of additional factors to be considered.


Please enter your comment!
Please enter your name here

Comment moderation is enabled. Your comment may take some time to appear.