Addressing a gathering of hundreds of former IITians at a 'Pan IIT' summit here, Murthy said the quality of students entering Indian Institutes of Technology (IITs) has deteriorated over the years due to the coaching classes that prepare engineering aspirants.
He said the majority of the students fare poorly at jobs and global institutions of higher education.
"Thanks to the coaching classes today, the quality of students entering IITs has gone lower and lower," Murthy said, receiving a thundering applause from his audience.
He said apart from the top 20 per cent of students who crack the tough IIT entrance examination and can "stand among the best anywhere in the world," quality of the remaining 80 per cent of students leave much to be desired.
Coaching classes teach aspirants limited sets of problems, out of which a few are asked in the examinations.
"They somehow get through the joint entrance examination. But their performance in IITs, at jobs or when they come for higher education in institutes in the US is not as good as it used to be.
"This has to be corrected. A new method of selection of students to IITs has to be arrived at."
Drawing a road map to put IITs among the top engineering institutes in the world, Murthy said it has to be ensured that IITs "transcend from being just teaching institutions to reasonably good research institutes" at par with Harvard and MIT in the next 10-20 years.
"Few IITs have done well in producing PhDs but in reality when we compare ourselves to institutions in this country, we have a long way to go," he said.
More emphasis has to be given to research at the undergraduate level and examinations should test independent thinking of students rather than their ability to solve problems.
Murthy said in order to produce good research at IITs, the Indian government has to be persuaded to create institutions that fund research projects.
In addition, faculty members should also be evaluated annually on their research performance by an independent committee, Murthy said adding that India must shift from the tenure system for its faculty to a five year contractual appointment system.
The Infosys mentor also lamented the poor English speaking and social skills of a majority of IIT students, saying with Indian politicians "rooting against English", the task of getting good English speaking students at IITs gets more difficult.
"An IITian has to be a global citizen and must understand where the globe is going," he added.
Murthy also stressed the need to have the governing council of IITs made up of its alumni.
The only way IITs can become better is if 80-90 per cent of members on their governing council are alumni.
"Nobody is bothered about an institution more than its alumni. We must somehow persuade the government of India to let go of its control and make sure majority of the council members is the IIT alumni."
Murthy urged IITians spread across the globe to work with their alma mater to ensure that IITs are among the top 10 engineering schools of the world.
He said while only a couple of IITs feature in the top 50, there should be at least five IITs in the top 10 engineering schools in the world in the next 10-20 years, he added