I wanted to comment on the article here as I saw the problems from an industry perspective.
I ran the engineering team for IRIS Technologies Inc. including the one in India from 2000 to 2004. Recruiting was a nightmare. Our average for offers was: for every 2000 resumes received we would interview about 75 people and would make 1 offer. So I agree that there is no shortage of engineers but there is a shortage of good engineers in India.
The problem with setting up IITs and increasing graduation rates etc is as follows:
At any school, whether in the US, India or anywhere there is that 2% to 5% who will do exceptionally well anywhere under any conditions. Then there are the 25 to 30% in the middle who are above average who work moderately hard and perform well. Then there is the rest who are composed of slackers, overachievers and the bottom of the heap.
It might sound unfair, but that is how life is: everyone cannot be a brilliant engineer or doctor, scientist or an orator. We have to give them all equal opportunity to find their strengths or comfort zones in some cases this is the responsibility of the government.
Being from an IIT Campus where my father taught for 25 plus years, I know this problem a lot more intimately than what you mentioned.
Most of his colleagues were PhDs from universities like Berkeley, Purdue, Michigan and other good schools in the US who went back to India in the late 60's and the early 70s because of idealism, family or other reasons.
The problem is not only Salaries, but one of social dysfunction. In general, I saw that most students in IITs did not respect their professors which was true in the 80s and 90's and today (I sat in several classes). The reason for that was that after graduation, they would earn about 5 to 10 times what their teachers earned. Having done my BSEE at Georgia Tech I never saw or heard any student treat their teachers the way some of the IIT professors and other teachers in other schools in India were treated. There seemed to be a general sense of entitlement in all IIT Graduates. Yes they work hard, they are smart, some of them are brilliant, and some of the alumni have achieved a lot, but that does not excuse that attitude.
The culture in India has become one where there is very little respect for teachers, or for rules, laws and in general ethics. this is because: Money is very important as there are a lot of poor and middle class people wanting to cross that divide and higher education is one possible way for them to do it but there are easier ways to do it as shown by the politicians and the crooks.
Running the IRIS engineering team with the talented engineers we found was more of a social engineering exercise for the first two years.
This is also reflected in the relationships students maintain with their professors. a lot of father's students from 70's still maintain contacts, and so do his colleague's students. But the later generation of students after the recommendations were given for admission abroad or for jobs never were in touch.
the problem is not just increasing salaries or building more IITs or hiring more teachers. The Indian society as a whole needs to go through a generational transformation with the following changes in order of priority:
1) One has to do engineering or any field of study out of interest not out of necessity. This will change as general prosperity increases. It is also the responsibility of the political establishment to create opportunity (investment climate, business friendly policies etc) which has so far failed the people (half the politicians elected in India to offices have criminal records).
2) People need to get their values straight, get over the survival mentality and think more strategically, instead of reveling in instant gratification (money, pleasure etc) as reflected by the businesses, that only operate on selling or trading goods but by and large do not invest in R&D.
3) India is not China and GDP is not a measure of progress, the average person in India still makes between $800 to $1000 per capita based on GNP numbers of around $300 billion. Compared to $40,000 for the US. Stop comparing US and India and India and China. China's trade defecit with the US is almost equal to India's GNP. China because of communist rule and a lot of upheaval became more of a homogeneous society, whereas India remains a country where a lot of ethnic groups and region wants autonomy or independence.
3) India is a third world country. As with any third world country the top 2 or 3% of the people control most of the wealth in the country. Get rid of this IT mentality, and start producing home grown products. this again is the failure in the strategic thinking of the political establishment. Infrastructure investment creates jobs.
4) For a lot of small business and individual in India (PAY TAX), as according to the Income Tax department of the country majority of the tax payers of the country are people with salaries (whose tax gets deducted in the paycheck).
5) Stop corruption at every level, and develop some self confidence and national pride. Not false ego or pride but real pride based on achievements. The only bill rejected by both houses(all parties) in India was one that was pushed an organization named Loksatta that required minimum qualifications for people running for office and clean criminal history.
Unless this happens it will remain a 3rd world country for a long time to come, India has always been a net consumer not a net exporter like china. India has it's strong points, but there are no easy fixes. Unless revenues of the federal government increase it will be hard to fund quality higher education and better infrastructure for the benefit of the people