Paying You to Study: Does it Work?

Policies can sometimes have serious ramifications. A policy rolled out with good intentions can have devastating consequences in the long (or medium) run. Let me talk about one such policy in the state of erstwhile Andhra Pradesh (AP), a state in southern India. This had led to the development of a separate industry and excessive concentration in one particular field of study which is ‘engineering’. In this article, I try to explain the story behind a policy that led to the (excessive) supply of underproductive workforce into the market.

The years between 1995-2000 marked the beginning of the technology boom in India. With the arrival of Information Technology (IT) industries, allied services started to spring up in India. It was the time when N Chandrababu Naidu (CBN) had been the Chief Minister of the state of Andhra Pradesh. Taking into cognizance the fact that agriculture alone wouldn’t help the state grow, he wanted to leverage the IT boom for the state’s progress. He would tour countries, especially the US, and meet with the company heads and would convince them to set up their company in Hyderabad, the capital city of Andhra Pradesh. For all these efforts, industry people used to call him, and rightly so, the ‘CEO Chief Minister’. Though Hyderabad lost to Bengaluru in the race to become the Silicon Valley of India, it today has big companies like Microsoft, Google, Facebook, etc. and the famous Indian School of Business. Amazon today has its largest campus outside its headquarters in Hyderabad. All thanks to the CEO Chief Minister. Even as the industry grew, engineering colleges emerged to meet the needs of the industry. With that context, let us delve into the actual story.

In the subsequent general elections in 2004, CBN lost and his rival YS Rajasekhar Reddy came into power. The IT boom was in its golden period at this time and India’s macroeconomic stability was sanguine. In 2008, with an intention to bring technical education closer to the backward classes, he announced his famous policy: ‘Fee Reimbursement’. What the policy meant was that all those meeting the criteria laid down by the government, would get subsidised education in professional courses, i.e. engineering, medicine and pharmaceutical.

Beneficiaries of the policies were students that belonged to the OBC, SC, and ST categories. The Economically Weaker Section (EWS) quota has also recently been included. The criteria today is that OBC and EWS students with a rank below 10,000 in the ECET (engineering common entrance test; it was originally called EAMCET- engineering and medicine common entrance test) and income less than ₹100,000 per annum would get the reimbursement of their total tuition fee for all 4 years of their education. Students belonging to the same category with a rank above 10,000 and meeting the income criterion would receive a sum of ₹35,000. While students of SC and ST categories with an income less than ₹200,000 are eligible for full reimbursement of fee, irrespective of their ranks. The decision of fee reimbursement was revolutionary and gained massive public support. The number of students in engineering had risen rapidly. The intake of students in engineering colleges increased from 91,716 in 2006 to 172,994 in 2013-14. While the numbers had been on the rise since 1997, this policy had further bolstered the expectations of engineering education and the lucrative life it brought. Thus, more and more people started pursuing this field.

The aforementioned two happenings had also led to an increase in the number of educational institutions that offered engineering courses in the state. Anticipating the demand for bachelors in engineering, the State government allowed for private universities to be set up liberally, and granted, to a majority of them, autonomous status. According to a proposal sent by the State government to the All India Council for Technical Education, a central government body that oversees technical and medical education in the country, there were as many as 353 engineering colleges in the state. In 2016-17, however, this number had reduced to 220 (by this time AP had been bifurcated to form Telangana). Out of these 220, 146 colleges are situated in and around the state’s capital, Hyderabad. It is also shocking to know that in 2016-17, out of 31 districts in the state, 11 districts did not have a single engineering college.

The policy that had the objective to take technical education to the doorsteps of the backward classes clearly had had its first set back. This is because Hyderabad is relatively a costly place to live in. Also, the colleges around Hyderabad are located in areas where there is pretty much nothing but the college. This is the first drawback of the policy. Second, colleges started misusing the policy to their favour. The colleges are required to maintain 1:2:6 ration among Professors, Associate Professors, and Assistant Professors. This would mean that over 11,000 professors with a PhD are required across all the colleges. On the contrary, the government itself had expressed its concerns saying “…it would not be surprising if hardly 1500 such staff members could be found…in the State.” Even if you wanted to let go of this one, the nadir quality of the infrastructure convinces you of the extant scenario.

The other thing that the colleges do is to employ agents to bring them admissions and pay the agents a cut from their ‘earnings’. These agents are responsible for showcasing the colleges as something with the ‘best’ infrastructure to have ever existed on the planet and lure students. The colleges in the argument are the ones that solely run on the reimbursement money. As it is said, profit maximisation is the key for any business and these colleges can do so only when they cut costs. So, taking a cue from the popular meme ‘modern problems require modern solutions’, they ditch the ideas to create infrastructure and make reasonable payments to faculties. Economics tells us when there are a large number of firms, competition increases efficiency. The market in question, is clearly not an oligopoly (300+ colleges, remember?). It is also important to note that the fee colleges charge is decided by the government. While this is one side of the coin, the other side is how students misutilised this scheme. The important criterion for determining who should be allowed to avail this scheme is income. Students produce fake income certificates obtained by bribing the concerned officer (from whom the act requires the income certificate be issued) to avail the reimbursement.

Let us now talk about the effects this policy had on intermediate education (or inter, as classes, 11th and 12th are called). The ECET ( the entrance exam I mentioned earlier) is taken by the students who pursue engineering from the colleges in the state. Somewhere around 2008, two prominent educational institutions that run schools up to 10th grade, had ventured into inter colleges business promising that they would coach students for the JEE (entrance exam to the premier IITs) and the ECET. Initially, when the JEE test had weightage for the intermediate marks in determining the final rank, there used to be a relatively greater number of selections from the state to IITs- thanks to the lenient marking by the intermediate board in class 12 final examinations. The duopoly of the two firms meant these students would come from either of the two institutions. This clubbed with the marketing techniques employed by the institutions attracted larger and larger crowds year over year. But when the weightage was dropped, the number of ranks also plummeted. Yet, the fascination for these institutions continues. It is no exaggeration to say that you’d be disgusted at what new lows these institutions have sunk to promote themselves when they really have no ground. These institutions charge between ₹90,000 - ₹250,000 per annum for two years. It comes as no surprise, when you read all this, to know that the timings of these colleges range between 12 hours to 14 hours a day.

The objective of this article is in no way to criticise the policy. The state always has the responsibility of taking care of the have-nots. There are stories of many students who couldn’t dream of even studying who have benefitted from the policy and had become engineers. But it is imperative that we acknowledge that a set of decisions and actions led to something that can be categorised as a negative externality for society. One study found that only 0.7% of students in Hyderabad area “were able to write functionally and logically correct code”. The wanting of skill among people is shifting the costs of training the workforce onto the industry and thus, driving down the salaries paid to the employed graduates. If this doesn’t indicate a policy failure, I don’t know what does. When skills of the students couldn’t be improved and make them ready for the future through the policy, it is necessary to think of ways to correct the loopholes, if not bring in a totally new policy.


Kartik Balaji Kundeti

A low-key individual with keen interest in Economics and Policy making. Currently pursuing Economics from SRCC, University of Delhi.

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