The irrationality of the IIMs/Indians

Adam Smith's "invisible hand" theory suggests that, in a free market, demand finds the most economically viable supply that satisfies it qualitatively and quantitatively, and prices get determined based on that; that a free market is the game of "survival of the fittest". I'm sure IIMs teach these Macro-economic-101s to the eager minds that fill their classrooms every year. But what is put on display may make Mr. Smith turn in his grave.

I was bemused to find that IIM Ranchi has recently announced that it would only consider candidates scoring above 99.5 percentile in CAT 2010 for admissions into its PGP program commencing 2011. One doesn't need the Minerva squatting in his head to guess that in a free market, a demand for the top half-percentile share of candidates is one a 1-year-old, fledgling institute can ill-afford to make. Where is the “invisible hand”?

Let's look into the dynamics of the game. The institute can "afford the luxury" of calling for the creme-de-la-creme of young Indian minds not because it stands shoulder-to-shoulder with any of the other institutes (in India or abroad) in terms of research prowess, industrial/international exposure or quality of its staff/curricula. I'm not saying that it is bad on these but just that the jury is still out on them. After all, it is yet to produce its first output. Rather, it is just because it is blessed with the ubiquitous 3-letter acronym that 6 other predecessors have been blessed with - I-I-M.

How different is this from the dynastic politics that we’re so used to in India. We vote for people because of their names, surnames, affiliations to people with surnames, etc. We impute quality. We seldom see their merit. Is the case of IIM Ranchi (or for that matter the other ones that make irrationally exuberant demands) very different? Why do students mindlessly flock these institutes? Do they research before they apply? (A 101 for applying to b-schools).

So what does the average CAT-taker use to determine the institutes he applies to? I could think of only one simple business concept – economies of scale. It costs the applicant the same 1500 rupees or thereabouts for the application form whether he applies to 1 IIM or all. Makes sense to apply for all in that case, doesn’t it? The mantra that IIM Ranchi and all the new IIMsfollow is very simple. Take a process. Never bother how cranky/empty it is. See that you have extremely good input. Even if the input passes through your process rather undisturbed in any sense, they’ll come out as good outputs because started out with the good ones in the first place (Ever wondered why companies at IIMs prefer freshers that “they” can train instead of preferring experienced industry people with a new, acquired business outlook?)

No wonder those simple ticks that a CAT-taker makes with his pencil on the form translates to such monstrous cut-offs. No wonder IIMs get 400-500 applications for every seat on offer while Harvard gets around 13. No wonder a set of institutes with mediocre research grants, astonishingly few research-hungry staff and just-about-ok infrastructure can pass off as national champions. No wonder Indians fall for names instead of the quality that lies within. No wonder India votes for families and surnames.