IIT - CURSE OR CURE For the Country



If I were Nehru, I would not have created IITs.



IITs are considered one of the showpieces of Indian quest for excellence. Graduates from IITs have excelled in a variety of fields and have brought laurels to the country. It has become the dream for lakhs of teenagers across the country - the definition of achievement. Wasn’t it a stroke of genius on the part of those who came up with the idea of creating IITs ? Let’s analyze the IIT model a  bit in detail.



IITs are one of the most misdirected subsidies.

Lakhs of teenagers across the country, toil for months, to get into these IITs. What exactly are these teenagers toiling for ? These teenagers are fighting among themselves for the right over government subsidies at the cost of all other citizens in the country.

What kind of teenagers generally make it to these IITs ? Duly considering the seats officially split among various communities, these primarily fall into two kinds, among their communities.  Either they are those who are relatively better skilled at physical sciences than others. Or they are those whose parents are capable of spending huge sums of money ( by Indian middle class standards) to get them coached into IITs. 

Did the first group need subsidies for education ? No . These were teenagers who were already better skilled than others in their community and in most cases would anyways earn way more than the rest, in future. Rather they would be among the topmost earners in the country. But the system  by design chooses such people over others for these subsidies. These are the people who can most easily secure loans from banks to pay the full cost of their education . But the system precisely forces the others to pay higher rates to other private educational institutions and to depend on loans to pay that . Is this a good subsidy ? Answer for yourself !

The second group is those whose parents were among the richer in the middle class and could afford expensive coaching courses . Did these students needs subsidies at the cost of all other taxpayers ? This is an ultimate no-brainer.

IIT model is just snatching from poor and giving to the rich. IITs increase economic inequality.

We just saw the microeconomic effect on individuals of the IIT subsidy. What are the macroeconomic effects of the IIT model ? ( or more generally –highly subsidized government education with entry determined by competitive exams) . Tax money which could have been used for helping the poor in the country (through time bound income independent cash transfers)  is being handed on a platter to the relatively better off. If you are worried that young poor kids in the country don’t have access to basic schooling, blame these misdirected subsidies . Even if the government had let the market distribute education and waived off the taxes they are spending in the name of IITs, these poor people would have been in a better state with more tax-waived private money getting invested in the education sector.

The Indian middle class is up in arms whenever the government proposes any kind of subsidies on food grains , healthcare  and similar stuff. All of them are wrong, no doubt, but even worse is this subsidy given predominantly to the middle class against which nobody seems to be complaining. The Indian middle class though believing they don’t support communism, more or less are unable to identify communist ideas when they are properly marketed to them.

This socialism in the form of IIT subsidies, does nothing more than exaggerating the economic inequalities in the country. The better off become even better off and the poor stay where they are.


But isn’t it good to promote education ? Will you also speak against scholarships for meritorious students ?

Yes its good, if it isn’t the government. Yes I will, if it’s the government.

Its wrong for the government to promote education , or anything for that matter . Why ? Because government does not produce any goods or services, private individuals do. The only way for the government to give something to somebody is to snatch from somebody else. Whenever any government says that it will promote education, it must pull money through the tax mechanism from private individuals, money(capital) which would have otherwise been distributed by the market in sectors with the highest demand. And if you think education is very important, even the market , by reacting to the price signal, will move money to those sectors which are important, and much  more efficiently than the government.

So does that mean we should not promote educations ? No. Private individuals should be free to spend their money the way they want. And if they want to promote education then they may freely do so. The only thing I am saying is if you want to promote educations, do it with your own money. I cannot support you in snatching money from other people to spend the way you want.

For the same reasons, government providing scholarships to meritorious students is a bad idea. Being meritorious is an incentive in itself. If you are actually useful for the society, you will earn more. Government artificially increasing the incentive for merit over and above the market is a bad idea coz this must be done by the government by taxing someone else higher than otherwise – money which would have been invested much more efficiently by the market. Private charities planning merit scholarships are perfectly fine coz its their personal money and they should be free to spend the way they want.


But the private sector only cares about profits! We need the government to invest in sectors beneficial to the society as a whole.

Who is the right person to determine what is and what is not beneficial for the society as a whole ?  It is the individual who is finally benefited. If an individual thinks something benefits him, he will generally be ready to spend more money on it compared to other things he can spend it on. Taking the aggregate for the whole society the total money offered for a service in the market will depend on how beneficial the society considers that service for the society. The price signal will propel the ‘evil’ capitalist to invest his money in producing this service . This is the market mechanism.

What is the government mechanism? This starts with first rejecting the knowledge and experience of  millions of individuals in the society who are deemed incapable by the socialist of knowing what is good for them. It is then assumed that a set of bureaucrats and elected ministers will be able to make better calculations on how much to invest in each sector , than the sum total of all individuals in the society exercising their will through the market. The next step is granting monopoly powers to these bureaucrats and ministers and exclusive rights to collect(tax) and spend other people’s money. Ironically this is the same socialist gang which came to power citing research on how bad monopoly is and how monopolies lead to inefficient outcomes! 

The above just talks about the theoretical reasons on why the government mechanism is worse . I don’t think I need to cite empirical evidence to support this. The Indian experience with socialism is not something which needs to be cited again and again.


IITians have brought laurels to the country. Even US presidents have named IITs in their speeches! IITians send foreign currency back to the country !

Yes, US presidents have named IITs in their speeches! What do you make if it ? If Coca Cola praises some policy of Pepsi, what do you make of it ? 

Of course US Presidents will praise IITs. IITs provide USA with cheap labor at the Indian taxpayer’s expense . To elaborate, IIT model  takes money which should have gone to the poorest Indians , gives them as subsidies to better off Indians to improve their skills which increases the supply of technological labor for American companies. A win-win for USA. 

Yes they do send foreign currency back to India . They benefit from government subsidies at the cost to other Indians and send back money to ‘their own’  bank accounts. Now will the real socialist , please stand up ! If this is a good outcome, it is a justification for a policy where the government goes a step further and subsidizes meritorious Indian students to be sent to private American universities . This will  give you more of the above outcome . What do u think now ?   


IITs have led to much technological progress in the country

There is a very apt depiction of existing governments. Government is what breaks your legs, uses tax money to provide you a subsidized wheelchair, uses tax money to build accessible infrastructure and then points out to you that you are moving around so well due to the government. 
Similar is the case with this uni-dimensional simplistic argument. Yes there is no doubt IITs have contributed to technological progress. At what cost ? What would have happened if there were no IITs. Would there have been technological progress ? What would have been the extent of technological progress ? Would the Internet have existed if the US government had not done something about it? 

Where did the government get the money from, which it used as funds for IITs?  As taxes from the private individuals. 
What would these private individuals have done if the government would not have had taken this money from them? Most of them would have done anything to make more money out of it. 
What is the mechanism to make money in a free market ? Provide something in the market which society values . 
What is the final purpose of technological progress ? To provide something which society values .
What would the private individuals have done to produce something of value for the society ? Invested in technology  where  it is required to fulfil society’s needs.
What is the right amount of investment in technology ( mind it any money spent on technology must reduce money spent on something else) ? To that extent which maximizes value for the society considering everything this investment gives society and what it snatches. 
Which model would tend to move towards this optimal level of investment ? Take thousands of examples from the history of human civilization (or just from India) and answer for yourself.
Which model would have been more efficient in terms of Return on Investment ? Take thousands of examples from the history of human civilization (or just from India) and answer for yourself. 

This idea is not specific to IITs. This is a feature common to any governmental investment . Just ask these questions . What is the right amount of investment in Sector X? Which model tends to go closer to this ‘right amount’ and is efficient? 
The primary reason why governments go wrong in estimating the ‘right amount’ is because they are not looking at profits which means they are not looking at value provided to society. They say they are looking for value provided to society, to get your votes, but they are not and they can’t. If they were they would have sold off Air India.   

If a group of ministers and bureaucrats could fathom all the decisions the millions of humans in the market are making every moment, depending on their subjective emotions, objective calculations and things you cannot even imagine, they could as well have been supermen.  And we know there are no supermen around !



Your stand is hypocritical, you have yourself benefited from this subsidy!

What should you do when you know some policy is wrong? ( I am not implying that I understood that the policy is wrong when I took the decision more than a decade ago, I am just considering the case if I did) 

If you are in a position to change the policy, change it. 

If you are not in such a position, consider two cases , one in which you take the undue benefit of the policy and a case you don’t.
If you do, there is someone else who suffers.  It is easier for you to convince this one person that the policy is wrong! (convincing other people is as easy or as difficult as otherwise) . Yes, you do run the risk of being labelled a hypocrite. 
If you don’t take the undue benefit, somebody else does . It becomes more difficult for you to convince this person that the policy is wrong. Along with that, people question your motive and call it  jealousy against those who actually benefited. 

The first case of being labelled a hypocrite is better.  At least they don’t reject the idea as being motivated by personal greed and jealousy, though they may reject for other reasons ( but that can as well happen in the other case) 

IIT model is socialism of the worst kind 

Socialist goals are commendable. But real world socialism generally produces results contrary to the goals. 
The right model to move in the direction of the socialist goal of reducing inequality from the current state in India is the free market. The right way to reduce inequality even further than what the free market provides is the ‘right kind’ of socialism: redistribution of wealth through time bound income independent cash transfers.   

Coming back to real world socialism , even they can be classified under various categories. All are bad but some are less worse than others. Some actually do help some poor at the cost of other poor, while increase inefficiency and corruption.  These are the governmental actions in the field of food, health and stuff. 

IIT model is socialism of the worst kind. It benefits the better off at the cost of the worse off. It is very important to clearly differentiate socialism from free markets cause most politicians try to sell socialism to the poor or uneducated  as socialism and socialism to the rich and educated as capitalism cause they know its finally socialism which gives them the opportunity to make money out of government . It is no wonder that people who say/think they support free markets also get into this trap that governmental intervention over and above its job of creating a free market, is somehow necessary to make markets work. 

The Government's job is to protect private property, enforce private contracts and manage stuff where you cannot define ownership and do the ‘right’ socialism if required.  Limited powers for the government is what will move us in the direction of an equitable and efficient society.

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