Math for dummies: Why pay Rs 1 cr for a medical seat?

Why would anyone in his right mind pay Rs 1 crore – yes, one crore – for a post-graduate seat in a medical college? If you had that kind of money after school, would you even have to work to earn a living? According to a story in DNA newspaper, the leader of the opposition in the Maharashtra assembly, Eknath Khadse, unveiled the details of a “sting operation” on the sale of engineering and medical seats in the state, where seats were apparently sold to bidders for considerations ranging from Rs 7 lakh to Rs 1 crore. The report, quoting Khadse, says that “private colleges and universities demanded Rs 7 lakh to Rs 10 lakh for bachelor of dental surgery (BDS) seats while the rate for a post-graduation courses goes up to Rs 1 crore.” Extracting a crore from medical college aspirants is apparently easier than extracting teeth out of dental patients. But the idea flies in the face of economic logic – since the whole purpose of an education is to find a vocation that earns you a decent income. [caption id=“attachment_279748” align=“alignleft” width=“380” caption=“Why would anyone in his right mind pay Rs 1 crore – yes, one crore – for a post-graduate seat in a medical college?AFP”]  [/caption] While smaller sums such as a few thousand rupees or even a few lakhs may make some sense since the student will presumably earn much more on graduation, the crorepati student clearly needs some coaching in economics. Let’s look at the math. If I invest Rs 1 crore in a seat, and, let’s say, I expect to spend another Rs 10 lakh while I am doing the medical course (MBBS, etc) over the next five-and-a-half years or six, that’s an investment which will yield nearly Rs 1.9 crore at the end of six years. (Assumption: a 10 percent annual compound interest, which is easily possible in a mix of equity and debt schemes). Put another way, the opportunity cost of doing a medical course for six years after paying Rs 1 crore as capitation fee or bribe is a loss of Rs 1.9 crore at the end of the course. And let’s not forget that while the seat-bagger will be slogging his butt off in the medical course, the person who opts to invest the Rs 1 crore in a mutual fund or bank fixed deposit will be having a ball. No work, all play. On the debit side, at the end of six years, the person who did the medical course would have a skill that can earn him an income while our all-play-no-work idler would have few skills but Rs 1.9 crore in the kitty. However, one can acquire skills for far less money – even if it is not to become a doctor. In fact, one could do odd jobs and small courses and earn some money. So there would be some skills learned while our future medic is beavering away with hefty books and inspecting skeletons in the lab. Now, if one were to invest Rs 1.9 crore in a tax-free bond at 8 percent (which is the going rate in recent tax-free bond issues), it would give you a monthly tax-free income of Rs 1.26 lakh. No MBBS doctor or even specialist will start out his career with that kind of income. Paying Rs 1 crore for a medical seat is only for the economically-challenged.