As the question asks about both IITs and IIMs here, I will prefer to answer it in two parts:
Lets first clear the facts -
IITs used to offer subsidised education upto 2015–19 batch for B.Tech, where per semester fee was ~60,000 INR, while the cost per student per semester used to be in few lakhs for the same period. But since the 2016 batch, MHRD decided to increase the fees for IITs and currently the fees for IITs stand at ~1.2 lakhs per semester with other charges such as mess excluded. The new fee structure is also subsidised to some extent, but the subsidy is considerably decreased compared to previous batches, and the significant portion of cost is now to be borne by the students.
For M.Tech and Doctoral studies, the education is fully subsidised, and IITs pay the students stipend to the students during their education period in IIT.
MBA education offered by IIMs is not subsidised at all, and all the cost for running the college is covered through the fees paid by the students during their course of education at IIMs. That is the reason why fees for few top IIMs is observed in the bracket of 20–25 lakhs excluding the other expenses such as mess. The MBA education at few of the new IIMs is subsidised, but still the MBA degree there costs fees in the bracket of 10–15 lakhs atleast, and hence only small portion of the cost per student is borne by the government. On the other side, IIMs offer subsidised education to the doctoral studies, and infact even the stipend is paid to these researchers doing research in management and business sector.
Now coming to point weather the subsidy is justified or not?
- IITians and IIM Graduates are actively contributing to the Indian Economy thereby helping country to grow: The purpose of the IITs is to offer the technical education to the citizens of the country and to do research in the fields of science and engineering. Significant portion of the students taking B.Tech degree from IITs are currently working in various tech firms in the country, and are helping these firms to grow and contribute more towards the development of the country. These firms are trying to solve complex problems tof the customers, developing the better products, and making processes more efficient and effective. On the other side, they are actively contributing to the domestic market, and also are exporting their products and services to the international market helping country’s export basket to grow. These efforts are ultimately helping economy to grow, and hence improve the livelihood of large population in the country. The same contribution is observed by IIM graduates as well who are driving these businesses on the forefront, and making strategic decisions for their growth. E.g. consider digital payment apps, they are now even used in rural areas. Its innovation by various such graduates. The above contribution to the country seems fair from the students from flagship courses of IITs and IIMs considering the subsidy offered to them by Government of India.
- Subsidy for Masters in IITs seems unfair: On the other side, getting full subsidy on education for degrees such as masters in IITs seems bit unfair, as their contribution to the country’s economy is also of the similar scale, and most of the masters students in IITs use this opportunity as back cushion for the preparation to civils or getting into PSUs. Stipend and subsidies are also highly unjustified for degrees such as masters in computer science considering the fact the financial returns these passouts get post their degree from IIT, which is less driven by their skills, and highly driven by demand-supply gap of such graduates in the market (compared to other sectors).
- For doctoral studies, stipend is essential: For doctorates studies in IITs or IIMs, the stipend as well as subsidy is justified, as there people dedicate significant portion of their career to research, and not offering them stipend will surely demotivate them to turn towards the development of science and technology. Also most of applicants in this category are in early/late thirties, or late twenties, and they are expected to support their families during this time financially, which is generally not the case for students undergoing bachelors and masters study. Also the nature of doctoral studies is more like a employment where the daily job involves research, and hence the stipend is justified.
- For some initial years of operation, new IIMs and IITs deserve the funding from government: For new IIMs, the partial subsidy is offered only in the initial stages of their operations (~10 years), and it looks justified as these are the times when institute is trying to build its repo in the international market, and subsidy combined with brand is one way to attract students towards them in the initial stages.
So, in order to contribute to the development of the country, it is not essential to go to rural areas and work there, as significant things can be done by staying in the urban areas. But yes, subsidies offered to certain number of courses in these institutions need to be revised considering the ground realities.