fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually

India recorded impressive growth over the last decade and Business Process Outsourcing contributed significantly to this process. However, the same logic that made business move to India may now cause the move out of India. Indian companies at the forefront of this movement complain of high labor cost and low availability of skilled manpower. This has been noticed by several experts. For example, T N Ninan in his column at Rediff.com wrote that, As for constraints (to economic development in India), it is becoming increasingly obvious that the primary constraint will not be the physical infrastructure, but a shortage of human resources. The sharp escalation in employee costs across sectors tells the story clearly: construction firms can't find engineers because software has sucked them all up, the tourism industry cannot get qualified people, the BPO sector is perennially stretched; accounting firms are astonished at the speed with which salaries are going up in their market, and so on. This would be a happy problem to have, except for the fact that India has vast armies of unemployed.

Surprisingly, since no one has yet diagnosed the problem correctly, the problem can not be addressed effectively. What explains this paradoxical situation of high unemployment and high labor costs? What also explains a dichotomy of Indian educational system where world-class institutions and failed establishments exist side by side?

Since the renowned institutions like IITs and IIMs and, the failed establishments alike are largely public, ownership of the institution doesn't seem to cause this difference. I argue that this difference may be imputable to a policy of cheap (nearly free) tertiary education.

Artificially-determined low prices result in an excess demand for college degrees since it costs nothing in terms of tuition, living expenses or opportunity costs for a vast majority of unemployed people. Simultaneously, it also results in a reduction in supply of quality college education since low potential revenues cause a low private interest in establishing new colleges. The state, in the absence of fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually

vious that the primary constraint will not be the physical infrastructure, but a shortage of human resources. The sharp escalation in employee costs across sectors tells the story clearly: construction firms can't find engineers because software has sucked them all up, the tourism industry cannot get qualified people, the BPO sector is perennially stretched; accounting firms are astonished at the speed with which salaries are going up in their market, and so on. This would be a happy problem to have, except for the fact that India has vast armies of unemployed.

Surprisingly, since no one has yet diagnosed the problem correctly, the problem can not be addressed effectively. What explains this paradoxical situation of high unemployment and high labor costs? What also explains a dichotomy of Indian educational system where world-class institutions and failed establishments exist side by side?

Since the renowned institutions like IITs and IIMs and, the failed establishments alike are largely public, ownership of the institution doesn't seem to cause this difference. I argue that this difference may be imputable to a policy of cheap (nearly free) tertiary education.

Artificially-determined low prices result in an excess demand for college degrees since it costs nothing in terms of tuition, living expenses or opportunity costs for a vast majority of unemployed people. Simultaneously, it also results in a reduction in supply of quality college education since low potential revenues cause a low private interest in establishing new colleges. The state, in the absence of fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually

a has vast armies of unemployed.

Surprisingly, since no one has yet diagnosed the problem correctly, the problem can not be addressed effectively. What explains this paradoxical situation of high unemployment and high labor costs? What also explains a dichotomy of Indian educational system where world-class institutions and failed establishments exist side by side?

Since the renowned institutions like IITs and IIMs and, the failed establishments alike are largely public, ownership of the institution doesn't seem to cause this difference. I argue that this difference may be imputable to a policy of cheap (nearly free) tertiary education.

Artificially-determined low prices result in an excess demand for college degrees since it costs nothing in terms of tuition, living expenses or opportunity costs for a vast majority of unemployed people. Simultaneously, it also results in a reduction in supply of quality college education since low potential revenues cause a low private interest in establishing new colleges. The state, in the absence of fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually

use this difference. I argue that this difference may be imputable to a policy of cheap (nearly free) tertiary education.

Artificially-determined low prices result in an excess demand for college degrees since it costs nothing in terms of tuition, living expenses or opportunity costs for a vast majority of unemployed people. Simultaneously, it also results in a reduction in supply of quality college education since low potential revenues cause a low private interest in establishing new colleges. The state, in the absence of fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually

fiscal constraints, could step up and fill this gap. However, pressure for increasing college seats accompanied by constrained resources result in an emphasis on quantity over quality, under-compensated and disinterested teachers, outdated methodology, inadequate facilities and indifferent students.

Consider this, for example: College students, on an average, attend less than half the classes, and teachers aren't far behind. A World Bank survey found that 25% of teachers skip work everyday, 50% actually teach and virtually no one gets fired for habitual absenteeism. Most skilled teachers run expensive, private classes from their home on the side. Students who want to do well are often required to take these classes. Unsurprisingly, it leads to a vast army of people with college degrees and without any employable skills. A study by NASSCOM last year found only 15% of Indian graduates employable.

In contrast, a handful of institutions that possess adequate resources draw excessive interest. Intense competition for admissions, excellent learning resources, well-qualified faculty, and high-paying jobs creates a virtuous cycle. Since there is a limited supply of skilled manpower, it sets their market price at a level higher than the unemployment levels in a free market economy would permit. A graduate from these top institutions makes over USD 100,000, an astronomical price in an economy with a per capita income of USD 3,000.

Therefore, a market intervention aimed at equity paradoxically ends up promoting greater inequities. Cheap education increases the accessibility of college education, but it turns them into worthless papers too. Since the undergraduate degrees are not valuable, graduate degrees become the norm. While a large proportion of college graduates go on to swell the ranks of discontented un/under-employed, others are called upon to find resources for more valued graduate degrees.

Instead, if the universities were free to charge market price, they would find their environment more munificent and dynamic. Higher profits, competition and mimetic pressures, in turn, would force them to improve their quality. More expensive education also means that only serious students will attend the colleges and those who attend will demand better quality.

The students who may oppose these policy changes would ironically benefit from these most. They benefit from the lower time spent in schools since they would not perforce need to attend graduate programs to get jobs. They will not need to take expensive private classes. Above all, they would benefit from better linkage between educational and vocational