If any aspiring business school professors were looking for a case study to write on counter-productive government intervention, they would be hard-pressed to find a better example than in India's elite business schools, the Indian Institutes of Management.

Last week was a case in point. After five years as director of IIM Ahmedabad, in Gujarat, Bakul Dholakia had to step down from the top job, in spite of the hopes of many at the school that this forward-looking figure would be allowed to serve a second five-year term.

Had he been reappointed, it would have been a triumph of hope over experience. For under the Indian system of academic appointments, it is the Indian prime minister who decides who will be the next director and the politically controversial Prof Dholakia had spent much of his time in office spearheading the IIM campaign against government dictates.

On a political level, the Indian academic appointment system is tantamount to the US president deciding on the next business school dean at Berkeley or UCLA, or the office of the British prime minister determining who will head London Business School.

On a practical level, it has hampered the IIMs in their efforts to become world-class business schools.

At the heart of the debate is the degree of autonomy enjoyed by these business schools. Those such as IIM Ahmedabad and its counterpart IIM Bangalore no longer require state funding - they are financially self-supporting. As a result, Prof Dholakia says: "What we require is fully fledged autonomy."

So vehement has been Prof Dholakia on the subject, that in 2004 he initiated an internal exercise on how to implement autonomy and presented the report to the Indian government in April 2005.

"The matter has been under consultation for the past two and a half years," he says. "I have spent half my tenure chasing them."

Autonomy is an issue supported equally forcefully in the southern city of Bangalore by Rishikesha Krishnan, professor of corporate strategy and the chairman for research at IIM Bangalore. He is particularly concerned about the government-determined salaries that the IIMs are allowed to pay faculty.

"We've been arguing - with not much success - that as we don't take money from the government, we should be able to decide salaries," he says. "What we're hoping for, but seems unlikely to happen, is that we will get more autonomy for deciding salaries."

Trying to attract new faculty is one of the biggest issues affecting the six IIMs - located in Ahmedabad, Calcutta, Bangalore, Lucknow, Indore and Kozhikode. (A seventh IIM has been created in Shillong, near the Chinese and Burmese borders.) And the biggest problem in faculty recruitment is salaries. The median starting salaries for graduating students from IIM Bangalore's flagship two-year post-graduate programme, for example, are higher than the salaries earned by professors, says Prof Krishnan - and many of those graduates are only 23 or 24 years old.

According to Prof Dholakia, corporate salaries in the US or Europe are twice those paid to professors. "If it is two to one, it is a career choice you are making," he says.

But in India the differential is 10 to one, with full professors earning about $12,500 a year. Although both IIM Ahmedabad and IIM Bangalore supplement professorial salaries with consulting and executive education work - Prof Dholakia estimates that his top faculty earn seven or eight times the government stipend - the positions are still hard to fill. "Attracting international faculty? You can forget it," says Prof Krishnan.

With India's top business schools eager to establish themselves as leading global brands, government control is hugely restrictive, says Prof Dholakia. "In the education sector, the nature of government control today is the same as the control they had over industry in the 1980s. As long as this environment prevails in institutions of excellence in India, there will be obstacles to impede globalisation."

IIM Ahmedabad and have led the way in the globalisation of these elite Indian business schools.

Bangalore has close working relationships, joint programmes and student exchanges with business schools such as Stanford in the US, Insead in France and Singapore and McGill in Canada.

Ahmedabad has particularly strong links with Essec in France, Bocconi in Italy and the Fuqua school at Duke University in the US. Last year, it started a joint venture for customised executive education with Duke Corporate Education.

Although visits from overseas students are popular at the Indian schools, attracting international students to study full time on these post-graduate programmes has proved near impossible. Because of the huge com-petition for places at the IIMs - there are only about 1,500 places in the six institutes but there are close to 200,000 applications - the schools can demand GMAT scores of more than 700. Those achieving these scores may well choose to go to Stanford, Chicago or Columbia instead.

But the IIMs may need to address three other issues before they can attract overseas students. The first is the name of the degree. Because the IIMs are not universities, they cannot offer MBA or MSc degrees.Their flagship programmes are known as PGPs (post-graduate programmes) or PGDs (post-graduate diplomas).

So, while the degrees are hugely respected within Indian industry and attract the sorts of stellar students that most US or European business schools would kill for, the institutes cannot officially call them an MBA. This prerogative is left to the 1,000 or more authorised business schools spread throughout India.

Ironically, the only way the IIMs could be given degree-awarding powers would be if they accepted more government control - something they are keen to avoid.

A second issue is location. Most of the IIMs are in a handful of India's lesser-known cities. Cities such as Mumbai and have no IIM. The Indian government has recently announced that three new IIMs will be built, although their locations are subject to local lobbying.

A third question is that of admission policies, which is an issue in tertiary education in India in general and the IIMs in particular.

Rumbling through the Indian court system at the moment is the question of whether universities should be required to reserve a proportion of the places on their programmes - 27 per cent - for those from disadvantaged backgrounds. (Some 25 per cent of places are already reserved for students from poor backgrounds.) The IIMs are concerned that this requirement, if it goes ahead, will dilute the quality of its student intake.

Prof Dholakia says: "They should first introduce [reservations] at secondary [school] level and then at colleges before they talk about post-graduate degrees."

In Bangalore, professors are also wary. In particular there is concern that to accommodate the extra students, enrolment numbers will have to rise and with that the number of faculty staff. All of which comes back to the issue of salary.

This will be one of the headaches facing the next director of IIM Ahmedabad, when appointed at the end of the year.

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