FINANCE
7.1 Dependence of IIMs on Government Grants The IIMs have both non-plan and. plan components in their annual budgets. The non-plan component of the funds is generally for maintenance of the normal activities of the Institutions. The non- plan budget includes provision for salary and allowances, scholarships to students, maintenance of buildings, travel and contingencies. The plan budget is largely for creation of additional infrastructural facilities such as classrooms, hostels and residential accommodation for faculty. Some portion of plan funds are also utilised for certain academic activities such as Specialised Centres, Seminars/Conferences, library books and journals etc.
Government provides the non-plan funds as annual grants after taking into account the internal income of the Institutes. 'The plan funds are provided by Government on the basis of the Five Year Plan allocations for development of' the IIMs.
There has been a steady increase in the level of annual maintenance grants provided by the Government to the Institutes. The grant to IIM, Ahmedabad was about Rs,167 lakhs in 198586 and by 1990- 91, it was of the order of Rs. 310 lakhs. In the case of IIM Calcutta, the non-plan grant was increased from Rs.130 lakhs in 1985--86 to Rs.272 lakhs by 1990-91. The grant to IIM Bangalore during this period was increased from Rs.147 lakhs to Rs.4.210 lakhs. The IIM Lucknow did not have a Non-Plan component during the period 1985-86 to 1989-90 as it was in the development stage. However, in 1990-91 government provided a sum of Rs.115 lakhs for the maintenance expenditure of this Institute. While IIM Ahmedabad could meet about 55% of its maintenance expenditure from internal revenues, the other two institutions at Calcutta and Bangalore could meet about one third of the expenditure from its own resources.
The existing practice is that the maintenance budget of a particular year seeks to accommodate a modest and reasonable increase on the budget of the previous financial year by taking into account the increase in salaries due to pay revision or hikes in allowances as per government orders and escalation of maintenance costs due to inflation. The annual non-plan budget is scrutinized mainly from the point of view of government orders on revision of salaries, increase in dearness and other allowances, pay fixation rules, medical reimbursement, creation of additional posts, replacement of vehicles, etc. In such a situation a steady growth of maintenance expenditure every year is accepted its an inescapable fact.
During our discussion with the IIM Directors and faculty members, we noticed their awareness of the need for containing the maintenance expenditure of the Institutes, for
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reducing their dependence on government funds and. for greater cost effectiveness of their programmes. There is also an increasing realisation that the cost of management education and training should not be so heavily subsidised as at present by the government and that the direct and indirect beneficiaries of the system should bear a sizeable portion of the cost.
7.2 Measures To Limit Annual Maintenance Cost The IIMs are heavily over staffed. This not only raises their running cost but also makes their orderly management difficult. Staff problems, frustrated work force and inefficient administration must be avoided by the very institutions which were created to advise industry on how to avoid such problems. The IIMs should try to reduce their work force specially at lower levels. In any case new recruitment should, be stopped except at faculty levels with a view to bringing down the ratio of faculty to non-faculty staff in the long run to the level of 1:3. The IIMs may also be helped to offer a voluntary retirement scheme to enable them to reduce their staff strength and with a view to lessen the burden of salary payment in the long run. Other measures like medical insurance of staff rather than reimbursement loans from concerned financial agencies for building faculty and staff housing etc. could be resorted to if these are more economical and could lessen the burden on annual budget. We are of the view that the annual budget of the Institutes should be carefully scrutinised for each activity or function through an appropriate mechanism with a view to identify the scope for eliminating wasteful or non-productive or otherwise avoidable expenditure and continuously review measures for generating additional internal resources. Specific time targeted goals should be set for each IIM to plan and limit its annual non-plan budget and expenditure by the Finance Committee and the Board. The IIMs which adhere to and achieve such targets may be encouraged to retain the additional resources generated over and above government grants.
7.3 Steps For Augmenting Internal Resources There is an urgent need for the IIMs to evolve and implement a package of measures for augmenting their internal income. The expectation that the Government would or can support without limit the maintenance budget of the Institutes is untenable in the current context of financial stringency. The reported thinking of government to freeze the non-plan maintenance grant of the institutions at the level of 1991-92 during the period of 8th Plan has brought home the urgency for the IIMs to augment their own resources. The Committee does not wish to go into the general question of subsidisation of higher education by government. However, during discussions with IIM Directors and faculty members, the Committee believed that there is good scope for taking up a variety of measures 'by the Institutions for raising their internal revenues., Such measures may include upward revision of the fee structure; charging 'recruitment fee' from client organisations for campus interviews and placement of IIM Graduates; recovery of full operational. cost including a reasonable percentage to cover overheads of MDP and other organisation-based programmes; adequate steps for augmenting research and consultancy revenue to the Institute; strong linkages With industry which may take the form of financial support to the IIMs particularly by contributing to the Corpus.
7.4 Educational Loans/Scholarships In order to mitigate the impact of revising the fee structure on talented students coming from economically weaker sections, the Committee would recommend that the government should have a scheme of providing educational loans to the needy students through the banks. The existing system of merit-cum-means scholarships for weaker section students should continue to be financed by the government.
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7.5 Towards Financial Self-Reliance Functional autonomy is essential for the IIMs, if they are to retain and enhance their capacity for excellence. Such functional autonomy is not possible without financial independence. The present system of determination of government grants annually is not conducive to adoption of practices of sound financial management within the IIMs. In this context the present method of determining the annual grants on the basis of deficits and by a notional percentage increase over the previous year should in our view give place to a system of Block Grants determined for a period of five years on the basis of a clear estimation. In case the government finally decides to freeze the non-plan maintenance grant of the IIMs at the 1991-92 level, it will be advisable that the funds for five years be given. as a block grant with financial flexibility to the Institute to deploy the funds in the best productive manner and free from the shackles of rules, regulations and instructions of government.
The Committee is of the view that steps should be taken to build up a Corpus Fund for each institute during the period of the next five years. The goal should be to reach a Corpus Fund of such size that the interest proceeds thereof could be utilised to finance the gap be- tween internal resources and annual maintenance expenditure of each Institute, without having to depend on government grants from the sixth year onwards. The Corpus should be made up of contributions by government, industry, both in the private sector and the public sector; contribution by Alumni, philanthropic and other organisations. Each institute may set up a Task Force under the Chairman with a time target for realising the Plan for a corpus fund. To begin with the government may consider releasing; the Five Year Plan outlay to each Institute as its contribution to the Corpus. The Corpus when fully subscribed may be managed by an independent Trust of which the Chairman of' the Board and the Director shall be ex-officio Chairman and Member-Secretary and other Members nominated by Chairman from those contributing Rs. one crore or more.
7.6 Future Government Grants Limited to Priority Sectors After the Institutes have become financially, independent, through the package of measures recommended above, continuation of the grants-in-aid support by the government of India can be directly linked and limited to the extent to which IIMs take up programmes and contribute to sectors considered high priority and of social relevance by the government or programmes which government may specifically ask the IIMs to execute including collaborative programmes with foreign governments, institutions and multi-lateral agencies. In respect of programmes in the area of public systems management or the lines discussed elsewhere in this Report, funding by government would seem to be unavoidable till an effective demand for well trained management personnel is generated in these sectors of the economy and the IIMs can then recover the full operational cost of the programmes from the beneficiaries.