A few excerpts:
There is a "joint entrance exam", or JEE, to get admission into an IIT and an estimated 400,000 students appear for it. That means about two out of every 100 who apply get into an IIT. To a first approximation, as economists put it, nobody gets into IITs.
Getting into an IIT is serious business. The insane level of competition to get into an IIT infects not just the students but also their families. Preparations start years before, often when the student is in the 8th grade - a full four years of slogging.
There is a mad rush to get into the better JEE coaching classes. Let's call them A-level coaching institutes. A-level institutes have to conduct their own entrance exams not only because their capacity is limited but also to select the best among the students. So there are coaching institutes - let's call them B-level - whose business is to coach students to pass the A-level institutes' entrance exams. I suppose with time there will be C-level coaching classes that prepare the students for passing the entrance exams to the B-level coaching services that prepare students for the A-level coaching institutes that prepare the students for appearing in the JEE so that they can enroll in an IIT.
Institutionalized insanity is a weak phrase when applied to the Indian education system. It is surely a marvel to behold. It makes you wonder how it has come to such a pass and why. Let's do that in a bit.
Reason for this situation is that education system in India is determined by the economy. Unlike in US, you have "ample" jobs in all fields, people can afford to pursue their interests. But in India, most people do what gives maximum money. So, lets become doctors/engineers/CAs. Who else other than an IITian gets 20 lakh ruppees per annum in India at the age of 22. (For people not in IIT, i emphasize again. Some indeed get this. This is not an exaggeration). So, every parent wants his child to go to IIT and so the mad race. This has got in our society so well, that everyone, even people of affluent families join the race to go to IIT.
As far as coaching institutes are concerned, there is no reason to cry against them. Its an industry which is thriving because it has customers. Although the downside is that because X people are joining coaching institutes, I will have to join so that I don't lag behind in the race. So, the industry did not have demand but has created a demand. It was never a solution to a problem but after it came, it created the problem and so a demand. It is now trying to solve that problem, to fulfil that demand. Economists might consider coaching institutes a perfect example for such industries.