Skyrocketing salaries: The real losers - last year's graduates.

"MBA graduate sets new salary record."
"I am 23, I have an MBA and I earn 5 Lakh Rupees a year."
"My daughter finished her BA and then did her MBA from Indian National Management Institute of Moradabad and now is working for a BPO."

Yes, we've heard it all. India is the new hotbed for MBA dreams. Forget work experience, forget even having any knowledge of companies or management, today an MBA degree has been reduced to just that. A degree. A few years ago, one only knew of the IIMs. Then came the others. Then came ISB. Then came hundreds more. Suddenly every Indian graduate wanted to do an MBA. Every company wanted to hire an MBA. Engineering was no longer enough and a job at Infosys was ordinary. What lead to this change? How did the generation of hardworking youth suddenly turn into money minded gold diggers?

Hype. In increasing order, the schools are to blame, the newspapers are to blame and the companies are to blame. Every year we hear of salaries hitting highs and breaking records and barriers. This has fuelled the dreams of millions of our youth and fooled them into thinking that this is the golden goose. Someone got an offer for more than a crore, someone else got an offer for $200000 and someone else got an offer with 3 companies for more than 50 lakhs. Hype. But in this hype, there is an economic incongruency.

Here is a realistic look at the salaries. All data shown below has been collected from the public domain and might be off by a little. Any assumption not explicity stated assumes that all other conditions remain similar from year to year.


I have listed the salaries for 5 top schools (not the Top 5) in India over the past 3 years. First, let me state that looking at the Higest salary columns is a waste of time. The real measure is in the averages. Second, the averages themselves are skewed as it is Stat 101 knowledge that means are highly influenced by extremes. A more appropriate measure would be the median salary with a good Inter Quartile Range mentioned but I haven't seen an Indian school give us that statistic. Third, Let's take a closer look at the INR averages (Column 6).

1. The average salary offered in 2006 is around 9.5 - 10 lakh rupees.
2. The average salary offered in 2005 was around 8 lakh rupees.
3. Between 2004-2005, the average INR salary increased by 12.48% across these schools. In 2005-2006 it increased by 17.60%.


Looking at the trend chart above it can be clearly seen that there is a clear upward shift in average salaries over the years.

Hewitt Associates, in their study of salaries across industries in India, found that the average salary increase in 2005 was 11.5% - 15.4% as compared to the previous year. Now if the average salaries for fresh graduates is increasing at the same pace as average salary increases for experienced people then I am no economist, but there is clearly something amiss.

Consider this case. A graduate from IIMA would have had an offer for 8 lakhs in 2005. In 2006 his salary in the company increases by 12% approximately. Now a graduate from IIMA this year gets offered 9 lakhs. Suddenly both are making the same amount though last year's graduate has an extra year of work experience. Now expanding on this, 2 years down the line, in 2007, he is making only as much as a fresh graduate with 2 years less experience. I know this doesn't apply after a few years, but in today's greedy world, even a year of incongruency is not fair. The result, last year's graduate is unhappy. The company now needs to increase his salary more than the market rate and that is not possible.

Here's another statistic. Assuming 70% of participating students get placed in India, the average amount spent by companies in salaries for these fresh graduates just from these 5 top schools is a whopping 85,20,78,500 Rupees. 85 Crores to be spent on less than 1000 graduates and this is not even CTC. Add the tens of other "MBA" schools in India, the thousands of more graduates and the total cost explodes. I again wonder if there isn't something else amiss. Is India Inc. growing this rapidly? Are companies showing a matching growth year on year to sustain these high salaries or are they slowly working their way into the red? Is it going to be a case of planting seeds to reap the harvest in a few years, but realizing too late that it was bad seeds that were planted to begin with?

As salaries increase, companies are going to struggle to cope with the expectations and soon our home grown talent is going to look outside. This is a global world, and there are countries waiting to poach our students. India Inc., Beware! Mark my words. I said it first. This is the beginning of the MBA bust.