The point here is not abt REC's becoming IIT, we should be looking at the bigger picture ie to improve the quality of education in the country and to have have a good number of truly worldclass institutions. Giving a good exposure to wider spectrum would indeed produce better and brighter students.
Secondly, i feel the govt is taking this measure in order to remove the regional imbalance currently existing.( in the north we have an IIT/IT BHU/ISM every 200 kms or so) but in the south we have just one(IITM) which is a step in the right direction.