Where did India's skilled labor come from? The surprising role of private education.

• Author: Dalmia, Shikha

One obvious prerequisite for the Bangalore boom was India's high-tech labor force. Most commentators credit India's technical prowess to socialist rulers who, in a bid to make the country an industrial power, "overinvested" in engineering and other professional colleges. Even as secondary school education languished, they built a slew of super-elite engineering colleges called IITs (Indian Institutes of Technology) and a network of regional engineering colleges to train workers for state-owned heavy industry companies.

But the government's "overinvestment" in education was not nearly enough to meet the massive demand among India's middle classes for professional degrees, their ticket to secure jobs even before the information technology boom. The biggest unmet demand, notes Economic Times correspondent Chidanand Rajghatta, was among upper-caste Hindus who were frozen out of most government colleges by admissions quotas that reserved up to 70 percent of their seats for lower castes and religious minorities.

In the 1960s and '70s, religious and philanthropic organizations picked up the slack by founding private engineering colleges of their own, often of substandard quality. But as the I.T. industry grew in the '90s, so did the number of private engineering colleges and polytechnics. Today, four out of five engineering students attend private colleges, even though those institutions charge five to 10 times more in tuition than government colleges. The private schools also demand an upfront entry or "capitation" fee equivalent to about $3,000 to $4,000--a small fortune for middle-class families. The quality of these schools still varies a great deal, notes Vijay Menon of Progeon, the Bangalore-based outsourcing arm of the I.T. company Infosys. "But many of them have built a brand name for themselves by the stellar performance of their graduates on the American GRE," he adds.

This market has thrived even though new colleges face high legal barriers to entry. For instance, private colleges are not allowed to confer degrees unless they can persuade the University Grants Commission, a government body, to grant them an affiliation with a government university. But government universities, without whose acquiescence the commission...