Around 2.7 lakh people took the CAT in 2008, less than 1.7 lakh people took it in 2014. That is a huge drop in numbers in just a 6-year period. (The numbers are probably not accurate to the decimal but the range is correct). Why has there been such a precipitous drop in such a short span of time?

The three reasons could be the most probable reasons.

1. 2008 was an artificial high, the global recession took its toll after that.

2005 to 2007 was  a period of global Bull-run. This was a time when IIM graduates were sought after by global I-banks at fancy pay packets; an era where IIM placement season used to be news for record-breaking salaries. Every B-school worth its salt (and a great many that weren’t) started increasing seats.  Those who did not just want to increase seats added campuses. SP Jain global, IMT Gaziabad in Nagpur, Symbiosis’s 18th new course are but few examples of this. The IIMs increased seats, added campuses and created new degrees as well. So, right about 2008 everything was looking up for the MBA-gig. Once the 2007-09 recession kicked in, fewer IIM grads went for ‘global’ jobs and Indian Economy also had to settle down to a more sobering pace.

2. The value proposition just does not exist.

This is the most important point. An MBA used to be thought of as a route to a better lifestyle and a higher career trajectory. Put plainly, this is no longer true.The entire argument can be framed with this example case study

Ram has 3-years experience at Infosys, earns around Rs. 4.5 lakhs per annum, has a (small) chance of going abroad on work and should see his salary expand by 30% in the next two years in the same company and potentially 50%+ in the next two years if he shifts company. If he joins a B-school ranked between 25 and 50 in India, there is a decent chance that he will land a job in the finance or insurance industry 2 years from now with a starting salary of circa ~Rs. 8 lakhs per annum. The cost of doing this MBA is Rs. 12-15 lakhs per annum. Should he take up this MBA?

If you have answered “Yes” to the question, please drop me an email, I have an oil well I would like to sell to you.

If you have worked for 3 years in a decent firm, it is no longer a great decision to join an MBA in a school outside the top 20. And thanks to the expansion drive that we saw in the 2006-2009 period, we had a surfeit of colleges in this “middling” range. So, a lot of middling colleges were granting MBA degrees to average candidates. Imagine what this would do to MBA salaries.

3. Recruiters have begun targeting undergrads more aggressively

During a 20-year period from 1985 to 2005, companies visited the IIMs to recruit talent and not the finished article. Then the IIM grads’ market price shot up thanks to international offers, and a great many recruiters were made to look at undergrads to fill some of their vacancies. The Goldman Sachs of the world started going to IITs and NLSs to recruit. They realized that they got candidates who were as smart but at lower prices. They realized it was better to recruit 21-year olds at 8 lakhs per annum, than to select entitled 28-year old IIM graduates at more than twice that price.

So, this brings us to where we are. A large supply of MBA grads from middling schools that do not add much. A labour market that refuses to pay much for this 2-years of “value-addition”, resulting in ok-ish salaries and an uncompelling value-proposition.

The absolute top tier colleges still offer something. It is the ones ranked from 25 to 50 that have suffered more. It is why it is perplexing that not even a few of them have shifted their policies to target freshers more. That way they can keep post-MBA salary expectations reasonable and attract the best recruiters. If I were running a B-school, I would position myself for freshers, both to the applicants and to the recruiters.

We will continue this with the next piece on “What next for Indian B-schools? and “What next for the CAT Preparation industry?”

The article was contributed by Rajesh Balasubramanian. Rajesh is an alumnus from IIM Bangalore, class of 2003 and runs 2IIM, an online coaching institute for CAT. 

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