Early this week, when the directors of the six Indian Institutes of Management met in Ahmedabad, they had more to discuss than just the modalities of the re-test after the recent leakage of the common admission test papers.

Over the last one year, relations between the country's premier business schools and their promoter -- the government  have been deteriorating.

CAT Scam: Complete Coverage

That's because the ministry of human resource development, which oversees education, is determined to have a bigger say in how the funds in all the six IIMs should be spent.

The IIMs -- Ahmedabad, Bangalore, Calcutta, Lucknow, Kozhikode and Indore -- unanimously claim that this is tantamount to "unwarranted interference threatening our autonomous status".

And there are many who darkly hint that even the leakage, unprecedented for CAT, which conducts it as a state secret, is "just another salvo to bring the IIMs to book".

Are things really that bad? What are the issues? The HRD ministry has for a long time been extremely unhappy about the large amounts of cash being accumulated by the IIMs, especially the older ones.

So it wants the IIMs to drastically slash fees and take in more students. It also proposes to have just one CAT for all the assorted management schools in the country -- that would be the IIMs and other independent schools.

The Government points to the American Graduate Management Admissions Test, conducted globally for admissions to US management institutes.

The logic behind this, says a bureaucrat: "The IIMs have the potential to contribute more to the country's education programme by becoming more accessible."

Also, the government has been wanting the IIMs to sign a memorandum of understanding. Under the memorandum the ministry is proposing the IIMs would only keep Rs 25 crore (Rs 250 million) and would hand over any excess.

Also they would keep the ministry informed about any expansion, fee hike or introduction of new programmes. So far, only three IIMs -- Lucknow, Indore and Kozhikode -- are believed to have signed on. The others are resisting strenuously.

Inevitably, the government move has infuriated the IIMs. Says an angry IIM head, "We are independent and take our own decisions and the size of our corpus depends on our ability to mobilise resources. How can anyone restrict something which it initiated."

The fact is that the government has reversed its position on institutions like the IIMs more than once in recent years.

In the early '90s the government, which was strapped for cash, gave the green signal for key educational institutions -- IIMs and the Indian Institutes of Technology -- to step out into the big bad world and develop alternative revenue streams.

While the IITs tapped companies and the millionaires who were once on their rolls both in India and the US, the IIMs relied on management development programmes and consulting assignments.

Then in 1993, the government changed track and introduced a new funding patterns for the institutes. Firstly, it gave a block grant.

But it also threw in an incentive to earn more saying that if the institutes earned, say, Rs 1 crore (Rs 10 million), it would give them an equal amount. It should be said, however, that the ministry has only matched the earnings only twice or thrice for the IIMs in the last decade.

So for most IIM administrations, the future was clear. If they were to evolve and sustain the quality of their management programme, they would have to be on the look out for funding opportunities outside the bureaucratic maze.

"We were asked to move towards self sufficiency and that's what we were doing," says an IIM director.

But they all claim that the grant has always been way below their expenditure. The bigger IIMs are said to spend around Rs 50 crore (Rs 500 million) annually and receive about Rs 20 crore (Rs 200 million) as grant.

Last year, in the Tenth Plan, the ministry once again changed its funding pattern. Deficit financing has now replaced the block grant.

This means, if an IIM saves a given sum, that will be deduced from the grant it receives.

Prakash Apte, director, IIM Bangalore, says that last year, the institute received a grant of Rs 12 crore (Rs 120 million). In comparison, the fairly new IIM Kozhikode received almost Rs 50 crore (Rs 500 million) as it is in a developmental stage.

"Deficit funding is certainly a retrograde step," says an ex-director.

The IIMs are reluctant to discuss how much cash they have stashed away over the last few years. But they all admit that they've built up substantial corpuses. "You don't put the surplus in savings but growth," says A H Kalro, director IIM Kozhikode.

IIM Ahmedabad, for instance, has a corpus of Rs 112 crore (Rs 1.12 billion). At IIM Bangalore, Apte, says, the institute has around Rs 60 crore (Rs 600 million), while IIM Kozhikode, which was set up in 1997 has just about begun assembling its corpus funds. But they all say that the expenditure outstrips the budgetary sanctions.

Now, the government wants them to trim the corpus to Rs 25 crore (Rs 250 million) and hand over the rest. It claims that it will dip in its money pool as and when the IIMs need funds for expansion.

But why is the government trying to limit already established revenue streams? An ex-director of IIM feels the ministry is annoyed because it feels that the institutes have been building up their corpus by saving their grants. The IIM heads dismiss this as sour grapes.

"What accountability are we talking about here, when there are state and central government representatives on our governing board," shouts one angry director.

"The IIMs can contribute more to the Indian education system and we feel that the corpus is not being well spent for research & development. They have to get out of their comfortable status quo. They are obsessed with their post-graduate diploma in management courses and not enough goes into faculty development. We also want to make it more affordable," says a bureaucrat in the ministry.

The IIM heads do not buy that. "We are quite willing to run quality programmes to train not only our faculty but develop personnel for other institutions," says a director.

Adds IIM Bangalore's Apte, "We arrange for funding for deserving students and also have scholarships for the needy. And we are always ready to run faculty development programmes."

According to Kozhikode's Kalro, three months ago, he had made a proposal to the ministry to start some more programmes. "I was told my priority was the PGP (post graduate programme). So it is a chicken and egg problem," he says.

Then, there's the question of fees. The government is pushing heavily for the fees to be reduced. Currently, the IIMs charge between Rs 100,000 to Rs 120,000 per annum for a two-year course. The government, it is said, wants fees to be reduced to around Rs 15,000.

"There is a feeling that if the IITs can charge less, then why can't the IIMs do the same. But there are all kinds of costs involved in providing quality management and the issue needs closer examination," says Ashoka Chandra, former special secretary in the HRD ministry and the founder director of IIM Lucknow.

The question of fees cuts to the bone for the B-schools and they are up in arms about it.

"We charge for the quality of the education that we impart. And banks too are ready to give loans for they are sure that the student will start off with a salary of not less than Rs 600,000," says Manesh L Shrikant, honorary dean at Mumbai's S P Jain Institute of Management & Research.

S P Jain is one of the 55 schools apart from the IIMs that go by the CAT scores.

Adds the director of a leading IIM, "Most of our students come from well-to-do families, so what's the issue. Any way, we are so much cheaper than other B-schools in the West. It is ridiculous as we will be subsidising the rich to become richer."

Then there is the issue of capacity expansion. The ministry feels that the IIMs should use part of their corpus to increase the number of seats. It wants each IIM to ramp up capacities to at least 400 over the next three years.

Today, the IIMs accommodate anywhere from 250 students in IIM Ahmedabad to 200 in IIM Bangalore and 185 at IIM Kozhikode.

The IIMs are more than willing to go along with this idea and are already making plans for it. Nevertheless, they say that expansion will be tough unless they are able to hire a lot more people on the staff.

"It would be worthwhile to examine the ratios in good western schools and derive lessons. It would be desirable to have the IIMs invest in greater faculty development," says Chandra.

Today, on an average, the student to faculty ratio at IIMs is around 1:8. In comparison, it is 1:10 and even 1:15 in Ivy League colleges in the US.

Says Apte, "Our overall faculty number may seem large but the for some of the in-demand streams like marketing and human resource, we face a faculty crunch," says Bangalore's Apte.

He claims that many of the faculty are hired for the management development programmes and do not teach in the PGP as they do not possess the requisite skills.

But the biggest dispute currently is over the government's move to make CAT mass-based. The logic of the move is simple.

Today, anyone who wants to get into an MBA course ends up appearing for at least three to four management entrance exams and spending around Rs 25,000. The idea is that this should be rationalised with just one CAT for the assorted B-schools around the country.

This is an idea that the IIMs are stoutly opposing. Says Bakul Dholakia, director, IIM Ahmedabad, "CAT is the examination which guards the quality of students coming to IIMs and we will prefer to retain CAT with us. We have been conducting it for the past 27 years, and one chaos cannot give anybody the right to take it away from us."

Adds Apte, "We can ultimately move towards that but we need to control it as there are 55 schools which use CAT scores for admissions. I believe that there are not so many organisations in India which can handle CAT as efficiently as us."

Then, there's the question of whether the government should have anything to do with the holding of the CAT exams.

Bureaucrats and other industry experts point to GMAT, which is an entrance exam for all American schools. But they usually don't point to the fact that the GMAT, is owned by the non-profit Graduate Management Education Councils, part of the ETS network founded in 1947.

Here, the American Council on Education, the Carnegie Foundation for the Advancement of Teaching, and the College Entrance Examination Board provided their testing programmes, a few assets and some personnel to form ETS.

Says Chandra, "It would be best to develop a professional independent agency to conduct the exams. This would considerably reduce the intellectual energy that both the IITs and IIMs spend in conducting their entrance tests."

Adds a bureaucrat in the Maharashtra government: "There is a lot at stake in India's management and engineering education." Consider this. Almost 130,000 students appear for CAT paying Rs 1,000 each. This for barely 1,200 seats.

That results in a huge cash inflow of around Rs 13 crore (Rs 130 million). Former IIM directors say that around Rs 2 crore (Rs 20 million) is spent on stationary and logistics expenditure. The rest, they say, is distributed equally amongst the IIMs.

Understandably, the IIMs are also wary of being clubbed with some of the smaller, less reputed business schools. They have good reason to be worried.

In the early liberalisation era, the state governments doled out licences for new schools like peanuts. As a result, Maharashtra alone is said to have about 250-300 management schools, many which are fly-by-night enterprises.

Says Shrikant, "Education must be decentralised and have heterogeneity of skills. Let the market forces take its own course."

So what is the way out? As Chandra puts it: "Both the ministry and IIMs should continue the dialogue and communication. This kind of thing has worked in the past, so they have to keep an open mind."

But there's every chance that in the coming months the battle could hot up.