Indian Postal Department

Generating Financial Resources

A Project Report
Submitted to
Prof. R Jain
Prof. S Morris
Prof. G. Raghuram

in partial fulfillment of the

requirements for the PGP course
Infrastructure Development & Financing

On
24th August 2001

By
Group 5, Section A
Amit Parakh Pritish Kandoi
Lokesh Garg Roshi Jain
Nishit Bhatia Vijay Kumar Raju I

Indian Institute of Management, Ahmedabad

Vastrapur, Ahmedabad
 Table of Contents

Background ..............................................................................................................5

Scope of the project..................................................................................................5

Methodology.............................................................................................................5

Introduction..............................................................................................................6

Case Study: Republic of Indonesia..........................................................................6

Pre-reform public operator structure and performance ............................................6
Postal reform process .............................................................................................7
Phase 1 – Transformation to a Business Culture (1995– 1999)............................7
Results – Phase 1................................................................................................7
Phase 2 – Major restructuring and re-design (1999– 2003) .................................7
Learnings from case study ......................................................................................8

The Indian Scenario .................................................................................................8

Organisation Structure of DoP..............................................................................10
Issues in Indian Postal system ..............................................................................10
Structural Issues ...............................................................................................11
Legal Structure and Competition ......................................................................11
Expenditure Revenue Gap and Tariff Control ...................................................12
Cross Subsidisation Vs Budgetary Support.......................................................13
Technological Issues ........................................................................................13
Under utilisation of Fixed Resources ................................................................13
Roadmap for restructuring of DoP........................................................................14
Rationale for the Road map ..............................................................................15
Reform of Indian Postal Sector.............................................................................15
Legislative Changes .........................................................................................15
Subsidy Rationalisation ....................................................................................16
Expenditure control ..........................................................................................16
Employees and Extra- Departmental Agents .................................................16
Post Office Savings Bank: ............................................................................17
Mail Motor Services .....................................................................................17
 Civil construction .........................................................................................17
Accounting ...................................................................................................17
House keeping ..............................................................................................18
Reduction in Post offices ..............................................................................18
Postal Land and Buildings ............................................................................18
Urban Postal Service ....................................................................................19
Rural Postal Service......................................................................................20
Additional revenue generation ..........................................................................21
Speed Post....................................................................................................21
Satellite Post.................................................................................................22
Business Post................................................................................................22
Partner in E-commerce logistics ...................................................................23
Express Parcel Post.......................................................................................23
Media Post....................................................................................................23
Retail Post ....................................................................................................23
Valuable customer database..........................................................................23
Financial Services ............................................................................................24
Indian Scenario.............................................................................................24
International Scenario ...................................................................................24
Instantaneous International Money transfer...................................................24
Domestic electronic fund transfer .................................................................25
Mutual funds and securities ..........................................................................25
ATMs ...........................................................................................................25
Money Changer ............................................................................................26
Pension payments .........................................................................................26
Billing collection & delivery.........................................................................26
Computerisation of DoP ...................................................................................26
Objectives of computerisation.......................................................................26
Current status ...............................................................................................27
Future Plans..................................................................................................27
Improvement in old services .........................................................................28
New Services based on IT.............................................................................28
ET Bills ........................................................................................................28
ET-Mail........................................................................................................29
ET –Bill-Pay.................................................................................................29
 ET –Warehousing .........................................................................................29
Software development ..................................................................................30
Digital Certification ......................................................................................30
Postmarking .................................................................................................30
Efficiency Gains ...............................................................................................30
Cultural Change ...............................................................................................31

Conclusion ..............................................................................................................31

Bibliography ...........................................................................................................32
Background
The importance of this project lies in the fact that post is a primary means of
communication for a large part of Indian population as well as a vital component of
India’s infrastructure but very little attention has been given to it. Situation is such
that perhaps India along with its neighbours namely Pakistan and Bangladesh are the
only countries wherein postal department has been so bereft of reforms. Thus in this
project we aim to have a look at Indian postal sector in light of reforms that have been
occurring in the postal infrastructure across the world and try to come up with certain
recommendations focusing on making the department self-financing. The perspective
of this project is primarily from that of the DoP.

Scope of the project

? ? To identify institutional / structural issues in functioning and identify action to
make postal services commercially viable
? ? To evolve an approach on the financial reform of the postal sector keeping in view
its strengths/weaknesses, socio-economic needs of the country and objectives of
providing world-class postal services at affordable prices.
? ? To make recommendations on extent of privatisation of services and need and
form of regulation required.
? ? To examine the issue of optimum utilisation of land, buildings and other physical
infrastructure including commercial exploitation of properties held by
Departments in metros and big cities
? ? To make recommendations on the restructuring/reforms required to make the
Department of Posts self-financing.

Methodology
First we study the case of Indonesia as regards their postal reforms and try to derive
some learning from that experience. We then move on to the Indian scenario and try
to identify the issues involved.
Based on our learning and the issues identified we build our comprehensive reform
plan for the DoP. This includes

1. Macro initiatives like corporatization and setting up of revenue tariff commission

2. Expenditure control methods
3. Study of some recent initiative by the DoP as regards their revenue potential and
market acceptability
4. Study of technology initiatives by the department and its future evolvement
5. Identification of new product and services that postal department could focus
upon

Introduction
Till the Post in India largely acted as a carrier of written communication between
individuals and had the role of establishing a network in unopened and inaccessible
areas, it had a public service role and character. During the last decade, not only has
the share of the Post in the communication market declined, but also more
significantly the share of private communication between individuals in the postal
traffic has declined with the growing share of business-to-business, business-to-
individual and individual-to-business communication. The Post in India is therefore
acquiring a business character and has to face competition. The time is ripe to remove
the governmental controls on the Post and vest it with operational and financial
flexibility of a corporation.

Case Study: Republic of Indonesia

The Republic of Indonesia is a large, (nearly 2 million square kilometres) Southeast
Asian country. Its 204 million inhabitants make it the fourth largest country in the
world Indonesia is considered a low-income, developing country with great potential
for moving into the middle-income bracket.

Pre-reform public operator structure and performance

Public postal operator was separated from telecommunications in 1965, it continued
to operate within the same ministry as a government agency until 1995. Up until that
time, the government served as both operator and regulator of the postal marketplace.
The public operator had the exclusive right to collect, transmit, and deliver letters,
post cards and letter cards, although this restriction was generally ignored.
Management was highly centralised and not based on the need to compete in an
evolving Indonesian postal marketplace. In fact, there was no marketing function
within the headquarters structure and therefore, little market research or product
development was undertaken.
Postal reform process

Phase 1 – Transformation to a Business Culture (1995– 1999)

The postal sector reform process began in earnest in 1995 with the creation of an
independent postal enterprise, PT Pos Indonesia as a state-owned corporation
operating under the regulations developed by the Directorate General of Posts and
Telecommunications (DG Postal). PT Pos Indonesia’s day-to-day managerial and
decision making authority was greatly increased and its internal structure redesigned
along more commercially oriented lines. During strategic planning exercises, special
emphasis was placed on business development and advertising to meet the changing
needs of a more sophisticated customer base.

Results – Phase 1
The Government goal of expansion of services was also achieved as total postal units
were increased by nearly one third from 1994 to 1998. However, this increased
coverage was achieved at minimal cost since nearly all of the units added were
franchise offices.
Furthermore, by 1997 the commercialisation of PT Pos Indonesia operations, with an
expanding customer base and more direct attention to large-volume mailers had led to
strong increases in mail volume and productivity before the full effects of the
economic crisis suppressed postal activity.

Phase 2 – Major restructuring and re-design (1999– 2003)

Phase 2 of Indonesia postal sector reform project is part of a major restructuring and
redesign of the communications sector during 1999– 2003. This project has the
following objectives

1. Extend and intensify communications and information networks to facilitate

sustainable regional development and economic growth by:

a. Extending the postal communications network to rural regions to establish a

basic communications medium
b. Extending email, Internet… to promote wider usage for information access
towards the promotion of knowledge acquisition and economic growth
 c. Introducing new value added services using existing postal and electronic
networks to be able to respond effectively to rapidly changing global market
needs

2. Develop appropriate legal and regulatory frameworks that would effectively

create the enabling environment for the provision of the above services in a
sustainable manner

3. Strengthen institutional capability and capacity in the relevant agencies and

administrations [e.g., PT Pos Indonesia]

4. Promote private sector partnerships in the provision and management of

information networks and systems

While the financial and economic crisis of 1997– 98 has slowed progress on Phase 2
of the reform process, a new postal law has been drafted and submitted to the
parliament for approval. This law would establish ongoing liberalisation of the postal
markets and maintenance of universal service. It is envisioned that the law will also
establish viable frameworks to monitor the cost and quality of universal service and
the ongoing competitiveness of the postal marketplace.

Learnings from case study

The case of Indonesia follows the global pattern of postal reform. First the traditional
legislatively ordained monopoly of the government department of post is broken over
the provision of postal services. The postal department, which used to work as an
adjunct department to the government, is carved off as a separate entity. The
government gives over the control to an independent tariff regulator who is
encumbered with the responsibility of setting the tariffs issuing the licenses,
regulation of behaviour of players and protection of consumer interest. However,
since postal services are still essential infrastructure and it is necessary to provide
universal access to such a service, government still retains the control over policy
functions.

The Indian Scenario

Postal services were rendered by a combined Department of Posts and Telegraph till
January 1985. The department as a whole was conceived and operated as a public
utility like the railways and electricity. The Post and Telegraph was a part of the
general budget of the central government.
Due to slow induction of technology and old staff norms, manpower costs increased
exponentially. Corresponding adjustment of product and service pricing lagged
behind expenditure in a soft state, which perceived postal services as the common
man’s means of communication and, therefore, needed to be under-priced with the
state picking up the subsidy tag. The subsidy was a cross subsidy from the Telegraph
in a combined Post and Telegraph Department but gradually the burden of cross
subsidisation depleted the resources of the Telegraph Wing, which required massive
capital for its expansion. Pressure from the Telegraph Wing and multinational
financial institutions, which became lenders to the expansion of the Telegraph Wing,
led to the complete separation of postal services from the telecommunications
services in 1985. Since then, the liability for postal subsidy is being borne by the
general exchequer. The postal deficit met from the general budget increased 1632.8%
from 1992-93 to 1998-99 to reach Rs. 15909.7 million, competing for top place with
food and fertiliser subsidies. 1
Postal services encompass three broad areas of activity i.e. retailing postal products
and services, transmission of postal articles and delivery of postal articles. India has
the largest number of post offices in the world. At the time of Independence, there
were 23,344 post offices in the country, mostly in urban areas and some larger
villages. The number of post offices on 31.3.2000 was 1,54,551 of which 1,38,149
post offices were in rural areas. On an average, a post office serves an area of 21.26
sq. kilometres and a population of 5462. Mail processing, transmission and delivery
are the core activities of the Department of Posts. During 1999-2000, the Department
of Posts handled 1578.15 crore articles. These are processed for transmission and
eventual delivery by a network of 573 sorting offices. 2
The Department of Posts, because of its wide reach and large number of points of
presence, is utilised by other departments of the central government and state
governments to perform several functions on their behalf.

1
The fifth report March 2001: Expenditure reforms commission, Government of India.

2
Annual report 2000-2001, Department of Posts, India
1. The Post Office Savings Bank (POSB) is the most important of such agency
functions performed by the Department of Posts on behalf of the Ministry of
Finance. Post Office Savings Bank operates 11.38 crore accounts under various
saving schemes. The cumulative outstanding balance in all forms of National
Savings as on 31.3.1999 was Rs.1, 55,295 crore. The annual mobilisation of
savings in the POSB is about Rs.25, 000 crore3

2. Postal Life Insurance (PLI), operated by the Department of Posts, is one of the
oldest welfare schemes for the government employees and the general populace in
the rural areas

3. The Department of Posts also performs other items of work like payment of
military pensions, Coal Miners’ Pension, EPF and Family Pension, Railway
Pension etc. for which it gets mutually agreed remuneration from the respective
principals

Organisation Structure of DoP

For the purpose of management, the Department of Posts has a Secretary to the
Government of India, who is also the Director General of the department and
Chairman of the Postal Services Board. The Board has three members, one each in
charge of Operations, Development and Personnel. Below the Board at the apex there
are nineteen circles, each headed by a Chief Postmaster General. Each circle is further
divided into regions, each region being headed by a Postmaster General. Each region
has a number of divisions headed by a Senior Superintendent or Superintendent. The
organisation chart of the headquarters of the department and of its field formations is
annexed to the report.

Issues in Indian Postal system

Postal administration in India is grappling with the challenge posed by growing
volume of mail, need to deliver services faster to the customers, increasing
competition form private courier industry, administered prices and poor technology.
These issues are discussed in detail below

3
Annual report 2000-2001, Department of Posts, India
Structural Issues
Historically the post in India largely acted as a carrier of written communication
between individuals and had the role of establishing a network in unopened and
inaccessible areas, it had a public service role and character. During the last decade,
not only has the share of the Post in the communication market declined, but also
more significantly the share of private communication between individuals in the
postal traffic has declined with the growing share of business-to-business, business-
to-individual and individual-to-business communication. The Post in India is therefore
acquiring a business character and has to face competition. The time is ripe to remove
the governmental controls on the Post and vest it with operational and financial
flexibility of a corporation. The so-called social service character -the need to
continue with a cheap postal service with state subsidy for the benefit of the common
man, of the Post can be still retained in terms of well-defined universal service
obligations.
The financial powers enjoyed by the Post under the Delegation of Financial Powers
Rules, 1978, are wholly inadequate.

Legal Structure and Competition

The de-jure legal monopoly of the department, which still continues, has been eroded
on the ground by a large number of private courier services who has taken away a
good proportion of the high revenue-yielding traffic from the state owned monopoly
operator.
The Post Office Act, 1898, (Section 4) conferred upon the central Government the
exclusive privilege of conveying by post all letters and of performing all the
incidental services of receiving, collecting, sending, dispatching and delivering all
letters except in the following three cases:

1. Letters sent by a private friend in his way, journey or travel, to be delivered by

him to the person to whom they are directed, without hire, reward or other profit
or advantages for receiving, carrying or delivering them.

2. Letters solely concerning the affairs of the sender or receiver thereof, sent by a
messenger on purpose
3. Letters solely concerning goods or property, sent either by sea or by land to be
delivered with the goods or property which the letters concern, without hire,
reward of other profit or advantage for receiving, carrying or delivering them

While the Act has included post cards within the definition of letters, the term ‘letters’
has not been defined in law. This lacuna and imprecision in law along with the
exceptions provided in law has led to the large number of private couriers conveying
letters purportedly as documents which “concerns the affairs of the sender or receiver,
sent by a messenger on purpose”. While they have cornered the high revenue yielding
part of the written communication market, Department of Posts is left with low
revenue yielding and expensive traffic as a part of its universal service obligation. The
efforts of the Department of Posts to meet the challenge of the couriers in the
premium product and service segments of the market have been limited by the
governmental culture of slow response instead of quick business decisions.

Expenditure Revenue Gap and Tariff Control

Determination of postal tariffs needs to be distanced from the government. Tariff
deciding powers should be transferred from legislative control to executive control.
There had been an irrational expansion of the network and manpower without
corresponding increase of the user charges. Starting with the mid-sixties, the
Department of Posts has been suffering from revenue deficit year after year. The net
postal deficit has grown from Rs. 91.81 crore in 1992-93 to Rs.1590.97 crore in 1998-
99, an increase of 1632.8 per cent. The postal deficit in 1999-2000 was Rs.1595.82
crore.4 Dependence on manpower, rather than technology has resulted in manpower
cost growing due to periodic pay hikes effected by central pay commissions and the
in-built system of payment of dearness allowance in line with the increase in the
consumer price index. While expenditure has steadily increased, postal tariffs have
not been correspondingly increased to reflect costs. For instance, the post-card tariff
remained static from 1973 to 1997-a record of price freeze on extra-economic
considerations.

4
Annual report 2000-2001, Department of Posts, India
Cross Subsidisation Vs Budgetary Support
One of the pertinent issues facing the postal department is to decide upon the
proportion of cross subsidisation and budgetary support.
The postal deficit met from the general budget increased 1632.8% from1992-93 to
1998-99 to reach Rs. 15909.7 million. There is a going concern about the increasing
deficits. It is high time that the department of post rationalises the subsidies and
eliminates the budgetary grants within a planned period.

Technological Issues
The department of Post continues to own and operate a large number of ancillary
logistic services even though outsourcing these would be a cheaper alternative.
Physical transmission of written message is getting outdated because of new means of
electronic mail. The future of the department depends upon its ability to adopt new
technology. Technology is the survival kit and competitive edge of any modern
organisation. It has totally changed the way business is conducted especially in the
communication sector. Physical exchange of data and message is fast being replaced
by electronic exchange through the worldwide web. The constraints of physical
transportation by surface or air are fast disappearing which has the tremendous
potential of relieving an end-service provider like the Department of Posts of its
reliance on physical carriers like railways and airlines. The Post has to choose to
become an e-mail operator instead of a snail-mail operator if it has to survive
competition.

Under utilisation of Fixed Resources

At the end of 1998-99, the Department of Posts owned 5189 office, 140 buildings and
2240 staff quarter. It also owned about 1900 vacant plots of land.5 The thrust of the
department since the beginning of the five-year Plans is to replace rented buildings by
owned buildings. There is an apparent under utilisation of these fixed assets. Since the
post office was a symbol of imperial presence, it occupied the centre point in all metro
and mini-metro cities. A post office is not only a retail outlet but an accounting centre
as well.

5
Annual report 2000-2001
 Roadmap for restructuring of DoP

A full time Finance Member, equal in status and rank to other

3 months
members, should be inducted into the board and the board
should be given greater financial and administrative authority.
The objective should be to prepare the ground for
corporatisation of the department.

6 months Determination of postal tariffs needs to be distanced from the

government.
Tariff deciding powers should be transferred from legislative
control to executive control.
Autonomous statutory Postal Rates Commission is created to
determine tariffs.

Similar to the regulatory regime obtaining in the pre-corporatised

telecommunications, the operating arm of the postal service is
9 Months
carved out as a separate departmental organisation which is still
government-owned and operated. Government retains the power to

12-15 Months The existing government-owned-and-operated postal service is

corporatised. Government retains the power to frame policy and
gives policy directions and grant licence to the corporatised postal

Private sector participation in activities, which have a clear business

orientation, like Speed Post, Satellite Post, Business Post and Postal
Life Insurance.
12-18 Months
Government retains the power to frame policy and give policy
directions.
Autonomous statutory commission is empowered to
(i) Issue licence to the corporatised postal service and all
privately owned couriers.
(ii) Monitor the performance of the licensees
(iii) Determine tariffs and protect consumer interest.
Rationale for the Road map

1. This restructuring roadmap has been designed keeping in view that some of the
changes will require legislative approval and may take some time to generate
political will

2. Extensive learning has been derived from the Indian experience in other sectors
like telecommunications especially the evolution of TRAI

3. Experience of IRDA ahs also been relevant since some of the legislative changes
required are similar to legislative changes required for opening and provision of
independent regulator for life and general insurance

4. Experience of other countries mostly UK and other European countries has also
been relied upon which have corporatized their postal department

5. Roadmap is prepared with a gradual evolution in mind since we as a country are

not at a stage where we can let go off the postal department in one go along with
USO obligations and subsidies currently inherent. Thus change has to be gradual
over the two years

6. The time lines are indicative only but having a timetable is better for attracting
investment and generating confidence. This also insulates the reforms from
changes in government ministries and associated stakes. Here in experience of
timetable for APM dismantling has been relied upon

Reform of Indian Postal Sector

Legislative Changes
The Post Office Act, 1898, needs to be totally overhauled by providing a legal basis to
the privately operated couriers and withdrawing the legal protection of monopoly over
letter services to the Post. The primary legal issue arising out of the changes in the
Post’s external environment is the continuance of Post’s de jure monopoly in letter
service. Recognising the de facto operation of a large number of couriers in the
market, the antiquated Post Office Act of 1898 needs to be completely overhauled.
The couriers who are operating without the rights and obligations imposed by law
must be brought under a license regime for proper regulation of their activities. Once
the comfort of legal protection is removed, the Department of Post has to gear itself
up to face the market demands for efficiency.

Subsidy Rationalisation
There are areas/products where, on larger considerations, government wishes to keep
cost of services at sub-optimal levels e.g. the post cards and rural networks. In such
cases the Department of Posts should seek to cover the under recovery to the extent
possible through cross subsidisation within the system and the gap should be met by
explicit subsidy from the central budget. The activities for which such subsidy would
be available have to be carefully chosen and kept to the minimum. The upper limit for
the subsidy should also be carefully determined and announced in advance. This limit
should be such that it does not undermine the enthusiasm of the department of Posts
in their efforts to reach zero deficits within a planned period. It should not also, on the
other, make the Department of Posts too complacent and lose focus on their efforts.

In addition to these structural changes the postal department needs to fend for
additional sources of revenue as well as reduce the expenditure on provision of
services. Herein we suggest some methods of additional revenue generation and
expenditure control.

Expenditure control
Deficit reduction can be achieved by through greater efficiency and productivity gains
in all areas of activities and also through abolition/rightsizing/outsourcing of ancillary
logistic services done in house. The existing costs contain many elements of
inefficiency including a major element of manpower deployment based on old work
norms. New work norms incorporating higher productivity in every sphere of postal
activity must be devised and introduced.

Employees and Extra- Departmental Agents

Evidently the postal department has extra workforce. This should be rationalized by
freeze of recruitment and natural attrition. Herein possibility of giving VRS to
employees whose skills can’t be upgraded needs to be examined.
Particularly important would be development of a clear-cut policy of extra
departmental agents, as they comprise more than half the postal departments work
force. Herein usage of schemes like panchayat Sanchar sewa yojana and involvement
of PCO owners as postal agents would be beneficial.

Post Office Savings Bank:

Remuneration for operating savings bank and other savings schemes needs to be
reviewed to reflect correctly and fully the proportion of expenditure incurred on
providing these services, after building in improved operational efficiency norms.
Considering the large volume of time, effort and manpower deployed on this activity,
there is a case for exploring the feasibility of assigning to the Department of Posts a
greater role in this program.

Mail Motor Services

The departmentally-owned-and-operated Mail Motor Service had an expenditure of
Rs.37.9 crore in 1998-99. It spent Rs.16.13 per kilometre, which, compared to private
transporter’s costs, is high.6 This service can be outsource in areas were the relative
cost of running is higher.

Civil construction
The Civil Construction Wing of the department, comprising 23 civil and 6 electrical
divisions spent Rs.48.72 crore in 1998-99.7 Since this was a common service for both
the Department of Posts and the Department of Telecommunications, a Civil Wing for
only the Department of Posts after the corporatisation of DOT is not viable. The
works can be entrusted to other construction agencies in the public and private sector.

Accounting
A large accounts organisation comprising about 7900 officers and staff is no longer
essential with large-scale computerisation and automatic data accounting systems
introduced in postal operations. Much of this work can be entrusted to accountants
working in Postal Operative Offices. Only a small account organisation may continue
to perform the work according to the Central Government Accounting Codes. This is
another necessary but essentially a support service, which can and should be

6
Expenditure reforms commission march 2001
downsized. The cadre of P.O. & R.M.S. accountants who maintain the initial accounts
in the head offices can be and should be trained to maintain classified accounts.

House keeping
A large number of housekeeping functions like that of chowkidars, farash, waterman,
sweepers and gardeners should be outsourced as the latter is cheaper and more
efficient.

Reduction in Post offices

There are a large number of one-man and two-man post offices in urban areas, which
are defunct and do not cater to the reasonable mass at all. Options need to be
generated to minimise the fixed cost relating to such full-fledged post offices, which
put disproportionate financial burden without diluting the access to the area served.

Postal Land and Buildings

Since the post office was a symbol of imperial presence, it occupied the centre point
in all metro and mini-metro cities. A post office is not only a retail outlet but an
accounting centre as well. While its retailing activity must continue in the urban
business hubs, its accounting and administrative functions can be performed as
efficiently in the suburbs.
For instance, the property owned by the department in the vicinity of Taj Mahal Hotel
in Bombay is being used by an ancillary logistic service like the Mail Motor Service.
If this property is developed to its maximum permissible floor-space index, it will
yield large revenue either by rental or outright sale. For a cash-starved organisation, it
would not be appropriate to invest capital in such activities. It would be far more
expedient and appropriate to adopt any of the methodologies like BOT, BOOT or
BOOL for development by a private property developer.
Ownership involves not only capital investment but annual maintenance costs.
Efficient organisations around the world are divesting themselves of ownership
obligations to concentrate on their core activities. The Post should, therefore, adopt
the principle of hiring buildings
Urban Postal Service
There has been an irrational growth of full-service post offices in the urban areas
because of the relaxed standards prescribed for their opening i.e. a minimum of 5
hours of work according to the departmental work measurement standards and income
to off set expenditure according to the departmental formula. One-man and two-man
post offices according to these standards have sprung up in close vicinity of each
other.
What needs to be done is to retain an adequate but far less than the existing number of
full-service post offices, and convert many of the existing full-service post offices into
extension counters in order to provide basic postal services i.e. postal stamps and
stationery, franking registration. These basic services could also be provided by the
private sector under franchise from the Department of Posts.

Delivery of mail in urban areas is expensive and inefficient. While a large Delivery
staff is deployed for the multi-storeyed buildings at the city centres, the growing areas
at the periphery of the cities lack adequate delivery staff. For some years to come,
households in India will continue to depend on the ubiquitous postman for doorstep
delivery. Meanwhile all governmental, business, industrial and commercial
Establishments qualifying for listing in the yellow pages should, through a mixture of
incentive and compulsion, be made to collect their mail from designated post offices.
This will release a large number of delivery staff for redeployment in urban
peripheries and in delivering time sensitive and revenue-earning speed post articles
and in e-commerce.

Though collection and delivery of mail is one of the core activities of the Department
of Posts, the activity itself does not require a high level of skill, which is available
only in-house, this activity can be entrusted to a non-governmental agency.
Compared to collection of mail as an activity, delivery of mail, especially
Accountable mail and financial instruments like money order, is a more complex
activity. Safety, reliability and responsibility for cash require an authorised person of
the department to deliver registered and insured letters and parcels and money orders.
But delivery of ordinary mail can be entrusted to non-government agencies with no
adverse effect on security or reliability.
Rural Postal Service
The extra-departmental system, an institution unique and peculiar to the Department
of Posts, was introduced in a cost-conscious utility like the Post in order to provide
basic postal facilities at a relatively lower cost in the rural areas. The extra-
departmental agents manning the rural post offices did not depend for a living wage
on the Department of Posts. They had other primary vocations like farming, teaching
or petty trading and were men of some means engaged in public service. They were
paid an allowance more akin to an honorarium than regular wages. This postal agency
system was originally designed to be a privatised form of postal service on the
analogy of a similar system obtaining in U.K. where grocery or medicine stores
provided basic postal services in the rural and sparse-traffic areas. However, there
have been increasing demands for wages in line with those of regular employees and
for other conditions of service like leave, pension, gratuity etc. Such demands, if
conceded, would negate the very principle of providing low cost services in rural
areas. Considering that even under this arrangement there is substantial uncovered
cost, there is in fact a need for exploring even cheaper methods for delivery of postal
services in rural areas.

A complete freeze must be applied on further expansion of present extra departmental

system to more rural areas. Rural Post Offices normally provide basic facilities of sale
of postal stamps and stationery and collection and delivery of mail. Village co-
operatives, wherever existing, may be harnessed to this task on the basis of revenue
sharing. PCO operators in rural areas should also be allowed to sell postal stamps and
stationery on the pattern of licensed postal agents in urban areas. Collection and
delivery of mail in rural areas should also be entrusted to the licensed postal agent on
the basis of revenue sharing as has been done for collection of speed post articles in
urban centres. Delivery of postal articles at the doorstep should be replaced by the
addressee collecting it from the existing nearest retail outlets of the department. These
arrangements should be introduced even in those areas where extra departmental staff
system exists, in a phased manner as and when these staff attains the age of
superannuation.
Additional revenue generation

Speed Post
Low-cost universal postal services not only yielded low revenues but also provided
the lowest common denominator in terms of service efficiency, which did not satisfy
the niche segments in a highly diversified communication market. Taking advantage
of the infirmities of law, vast areas of inefficiency of the universal service and the
emerging needs of the market, a large number of privately run couriers came into
being and eroded the business of the Post. The Department of Posts reacted to the
challenge by introducing a new service called Speed Post for the top end of market at
a higher price. Speed Post which carried 11,19,000 articles and earned a revenue of
Rs. 3.17 crore in 1987-88 has grown about nineteen times to carry 1,95,95,000 articles
in 1998-99 and earn a revenue of Rs. 91.36 crore. The size of the courier market is
estimated to be Rs. 1000 crore per annum. Speed Post currently has less than 10 per
cent market share. It has to diversify its product profile by identifying sub-niches in
this customer group, carry out massive technology upgradation and calibrate the tariff
through price-sensitivity analyses if it has to command a larger market share. Its
delivery reliability within a guaranteed time schedule should be enhanced by
deploying dedicated and motorised delivery personnel.

Services: It offers customers fast and assured delivery of letters, documents and
parcels up to 35 kg, across the network. Under the bran name of Speed Post,
International, domestic and gift services are offered. The focus areas are customer
service and delivery efficiency.

New products and services in speed post

Outsourcing of collection: Outsourcing has been provided in many Speed Post centres
to provide efficient and effective collection system. Under the scheme agents are
appointed to collect Speed Post articles from the corporate customers and retail
customers and then book them at the Speed Post centres. This is an effort to provide
door-to-door services to customers.

Quality monitoring systems: Quality of service, especially on delivery of Speed Post

consignments, is monitored at all levels.

Track and Trace system for speed post project: Speed post has established an
electronic tracking system in eight major cities in India. It incorporates booking,
bagging, transmission, delivery and customer accounts management modules. Using
this the customer will be able to track the consignments through Internet

Satellite Post
Satellite Mail does away with physical transmission and substantially reduces the time
lag between sending of a message and its delivery. It takes advantage of and optimises
the use of an infrastructure of 75 V-SATs and a very large number of modems
connected to telephones, originally set up for transmission of money orders, for
transmission of messages. It is not dependent on computer connectivity from
customer-end to customer-end but only between sender post office and delivery post
office. In other words, it is e-mail transmitted and delivered by the post office.
Therefore, in the framework of ‘cyber dhaba,’ the post office has to play a leading
role; the post office has to become the nodal point in computer connectivity. It will,
thus, become the biggest e-mail operator in the country. It will not only provide a high
performance and time-bound delivery but also reduce manpower costs and
transportation costs thus ensuring a reasonable rate structure. This service needs a
total overhaul with intensive and focussed marketing and competitive pricing to turn it
into a major business activity.

Business Post
The high volume mail from business to household and from business to business
clogs the postal sorting and transmission system and imposes a high cost on the
system. It also imposes a cost on the business - production of a hard copy, folding and
enveloping, addressing, payment of postage, bundling and handing over to a
designated post office. A number of postal administrations in the West have
introduced a service known as ‘hybrid service’ whereby the post office does the entire
processing on the basis of data supplied by the business either on-line or off-line.
Actual printing and processing takes place in a nodal point of several geographical
regions to save post office sorting and transmission time and cost. Since this work is
technology-driven and is capital-intensive, a number of postal administrations like
those in Italy, Switzerland and Sweden have entered into joint ventures with private
entrepreneurs, who have proved profitable. This is a totally untapped market in India
and can prove to be a money-spinner for the Post. The revenue estimated by a
potential private sector operator, Elsag Baily of Italy is about Rs.40 crore per annum.
Automation of Business Post Centres: Business Post centres at Delhi, Mumbai,
Chennai and Calcutta have been provided with Desktop mailing and inserting systems
to automate prevailing process on a pilot project basis. These machines will insert the
letters into the envelopes and seal them faster and better.

Partner in E-commerce logistics

A large number of dotcoms engaged in e-commerce have sprung up in the country.
While the financial transactions can be completed on the Internet, physical delivery of
goods purchased and sold can only be done by a courier. Speed Post can aggressively
market its capability to become the preferred courier of these dotcoms. With growing
e-commerce, this will be another money-spinner for the Post.

Express Parcel Post

EPP provides express delivery of parcels through ground transportation. It provides
booking and dispatch of parcels weighing up to 35 kg. The services are provided to
corporate customers on a contract basis.

Media Post
Media Post offers opportunities to business houses and Govt. organisations to
advertise their products and services on postal stationary, vans, letter boxes, etc.

Retail Post
By utilising its vast network of Post offices across The country, India Post offers to
collect telephone bills, electricity bills, etc. for Govt. and private organisations
through retail Post.

Valuable customer database

Postal department has 11 crore active saving accounts and it services reach each and
every person in every nook and corner of the country. Assuming that each family has
a single account and comprises of 4-5 members, it encompasses 40-50% of the Indian
population. This provides them with a potentially valuable database of customers
covering their addresses, family profiles, and income bracket. Part of this database
could potentially be sold to marketing firms as well as other public departments.
Financial Services

Indian Scenario
Postal banking operations is the single largest source of revenue for the department
and during 1999-00 it fetched 1055 Cr to the department.
1. A customer base of 11 Cr account holders.
2. Annual deposits exceeding 70,000 Cr.
3. Network is the double the size of all the existing bank networks put together.

Post offices have traditionally acted as vital channel for small household savings.
Thus postal department can leverage its large base to provide a host of integrated
services across the length and breadth of nation.

In addition generating revenue for the postal department such changes will also
provide positive externalities:
1. Economic development of the country by extending such IT enabled services
to common man ,
2. Financial services sector gets access to a reliable distribution network

International Scenario
Worldwide 80% of the work of post offices are postal operations and contribute 60%
to the revenue while 20% of the work is non-postal and contributes to about 40% to
the revenues. Japanese post office Savings Bank(POSB) is the largest bank in the
world and since January 2001 has gained control over the entire assets meaning that
it now acts as regular bank as compared to previous scenario where all its money went
into Ministry of Finance with Fiat.
Similarly in Europe postal banks have been greater freedom and Netherlands is an
extreme example where Postal bank is owned and operated by ING bearings.

Instantaneous International Money transfer

Post has entered into a partnership with a multinational company Western Union
Financial services International. The partner provides expertise and technology while
postal department brings its network to the table. Post office gains a commission on
the transaction and has generated forex exchange worth $400,000 in two months with
8
just 151 St and UT post offices offering this service.
Size of the market: $ 14 Billion

Domestic electronic fund transfer

This service is potentially useful for small companies and businesses, which operates
out of towns. Here the extensive VSAT network of the post office can be leveraged.

Mutual funds and securities

A typical account holder of the post office is also a target segment for the bonds and
mutual funds units issued by banks, financial institutions and mutual funds because of
the matching risk profile. Postal department can market such offerings and arrange for
such instruments to be sold at post offices at a transaction fees.
Such arrangements should be non-exclusive so that postal department can have a
continuous stream of revenues from such operations.

ATMs
Most of the banks are moving towards ATM based banking since cost of servicing a
customer in an ATM is less by a factor as compared to when such a customer is
served in an ATM.
IOCL has already leveraged its petrol pump network to let banks particularly ICICI
set up such ATMs at its site.
Postal offices have locational advantages as compared to petrol pumps as a location of
ATMs since post offices are located in heart of city while petrol pumps tend to be on
highways. Thus postal department can enter into an exclusive contract with an
ambitious bank, which wants to pan Indian ATM coverage and provide its site for
such deployment. VSAT network can be shared to provide connectivity to ATMs with
their central branch offices to have online ATMs.
Such ATMs at a later stag may also serve POSB customers and reduce the cost of
serving its own customers overtime.
With the kind of network that postal department is bringing to the table many banks
will find it useful to develop such a joint system.

8
Financial services for the post office – Internal memorandum – Background material 3
This is potentially huge business for postal department, since many banks are moving
in this direction and postal department finally has an opportunity to earn on its
infrastructure.

Money Changer
Postal offices could act as a full-fledged moneychanger to deal in foreign currency
and traveller checks. This business will also require joint venture partnerships for
traveller cheques and foreign currency transactions. Talks are on with American
Express for traveller cheques and banks for currency transactions.

Pension payments
Postal departments can act as front-end client servicing offices for pension related
work. This business opportunity can also be exploited in area of private insurance
products. A lot of new insurance companies setting up shop in India would like to
have a wide reach without incurring set up costs and they could potentially tie up to
sell their a part of their services through post offices.

Billing collection & delivery

Postal department can use its reach to every home in India to deliver bills of
companies like utilities and can also cat as a collection centre for such bills. This
service will be valuable to utilities such as water, power companies and
municipalities. This also gets a fillip since lot of SEBs are privatising distribution and
postal department can offer billing function to such companies. New entrants in
Telecom circles may also be targeted for offering such a service.

Computerisation of DoP

Objectives of computerisation
1. To lay stress on an efficient network – improvement in productivity, customer
satisfaction through responsive, qualitative and quantitative services,
improvement in working conditions and human resources development
2. To provide prompt, efficient, reliable and wide ranging services to customers
3. To strive for improvement of financial services through induction of appropriate
technology
4. To realise untapped potential in philatelic arena

Current status
Computerisation commenced with the induction of multipurpose counter machines
thus providing a single window to a customer for all transactions. Having succeeded
at this initial stage it has grown by integrating several functions into the network.
Initiatives:
1. Computerisation of post offices: 506 of the 839 Head Pos along with 2000 Sub
Pos have been computerised
2. Computerisation of Money Transfer: To be completed by end of 9th five year
plan by installation of 227 (77 in 8th plan) VSAT’s and 2040 ESMO’s
3. Computerisation of Speed Post facilities: 50 SPCCs have been covered in the
9th plan
4. Postal Life Insurance: computerisation of PLI activity covers setting up of
computer systems in the network environment in the circle offices for
maintaining ledgers of the premia received at different post offices. Computers
have already been provided in all the circle offices and the process has been
completed
5. Public Grievance Redressal: This activity targets connectivity of all Customer
care centres to the countrywide campus. 228 Customer care centres are
earmarked to be set up by the end of the 9th plan.
6. Philately: All 53 philatelic bureaux, and the headquarters branch, have already
been computerised during the 9th plan.

Future Plans
Though rapid strides have been taken towards the computerisation of the department,
a lot of investments need to be made. Particularly of note would be the skill of the
employees to handle the new services that will be created on the platform of
upcoming infrastructure.
 S. No. Computerisation activity No. of offices left Funds required
333 Head POs
1 Post offices 6.2 crores
14050 Sub POs
140 registration centres
2 Mail offices 72 transit mail offices 28.78 crores
54 Head record offices
3 Speed post centres 64 SPCCs 3 crores
4 Customer care centres 611 CCCs 19.8 crores
5 Inventory management 31 PSDs 2.48 crores
6 Administrative units 506 units 68.5 crores
7 Postal Accounts offices 20 offices 5.87 crores
TOTAL 134.63 crores
Source: Computerisation plan of the department – Background material 9

Improvement in old services

Faster settling of in-house accounts leading to efficiencies in mail handling and other
in-house work like employee's pay and other issues.
A lot of IT training goes into these IT initiatives, which are being taken by the
department, and enhances the skill set of the employees. This can be leveraged to
provide value-added services to customers in the future.
It gives a new look to the postal department and breaks off the old jinxed image.
POSB accounts could be brought online thus leading to faster and efficient service
thus increasing the customer satisfaction
Registered mail and speed post services could be made more efficient since these
involve high amount of manual handling of data, which could potentially be handled
electronically

New Services based on IT

ET Bills
An urban service this will involve downloading of bills at the delivery post offices
and direct delivery to addresses. This would greatly benefit bulk service providers like
MTNL, electricity authority, banks (credit card billing). The USP of the postal service
would be economy and speed of delivery due to its wide access. The major delivery
infrastructure required already exists.
This would reduce costs as physical bills enter the postal system only close to its point
of delivery reducing sorting, pickup and transportation costs substantially.

ET-Mail
In this service the e-mail can be sent directly to a delivery PO where it can be printed
and delivered. There are a vast number of people with one side access to e-mail. This
service can target not only Indians abroad but also migrants to cities who want to
reach their relatives in towns and remote villages. The potential is limited primarily to
rural and semi-urban areas.
On the infrastructure side this would require only off-line connectivity apart from
printing. Once delivery infrastructure is in place introduction of e-mail service from
remote areas can be started based on scanning technology, as this would be more
economical due to data entry costs

ET –Bill-Pay
A service can be started where the secure network of DoP can be used for accepting
payment in remote locations, confirming the payment to the E-commerce vendor in a
city and then issuing a receipt/acknowledgement from the vendor to the client.
As such spread of E-commerce will be limited to cities because of the difficulty in
establishing credit standings and verification in rural areas. Since postal offices are
already involved in large-scale money transfers through money orders and operate a
large banking network in the form of postal savings accounts, they can use their
network to provide the above service efficiently.
This service will primarily target rural and semi-urban areas as competitive payment
mechanisms may evolve in urban centres through banking networks

ET –Warehousing
DoP can use its reach and available space to create a chain of warehouses. On one
hand DoP can tie up with some E-commerce vendors and on the other with this
warehouse chain to deliver the item to the customer.
High shipping charges in low customer density areas, which are a major bottleneck in
expansion of E-commerce to semi-urban and rural areas, can be met economically by
DoP.
DoP derives its strength to provide this service through its wide reach, permanent
buildings located centrally in a large number of locations and the existing delivery
system.
Software development
The in-house software department has built valuable expertise in development of
software for use in postal services. This can be leveraged for its own use as well as
being sold to other postal departments in third world countries.

Digital Certification
The post offices can take up the function of certifying digital transactions through
Public Key Identification.

Postmarking
Documents transmitted over the web could be postmarked for authentication and
time-stamped.

Efficiency Gains
Efficiency can be improved and competition overcome by
1. Expanding the range of services offered at the postal outlets
2. Exploiting delivery service in combination with existing electronic
communications
3. Making post offices multi-service centres playing the roles of
a. Mail centres
b. Information hubs
c. Local warehouses
d. Community communication centres

The postman shall be a multi-tasked man for

1. Pick -up
2. Delivery
3. Taking orders
4. Conducting transactions and providing advice and information

The postal department also needs to do the following in future

1. Gearing the infrastructure for the age of convergence
2. Consolidation of the post and mail processing offices, by merging the smaller
units into the larger ones- optimise the capacity to handle volumes, without
compromising on reach and frequency
3. Expansion through the set-up of new offices with multi-dimensional activity using
multitasked “ supermen”

Cultural Change
Long term holistic approach and sustainability of these products and services.
The expertise to achieve the degree of skill and knowledge required for operating of
these services requires an investment into human resources.
Training effort can be shared with the private partner who is roped for such initiatives.
Such a training is also necessary to give an overall customer focus to the services
being provided by the post offices and change the traditional association of an
uncouth postman in tattered clothes on a rusty bicycle to an agent leveraging
technology, infrastructure and knowledge to bring a large set of integrated services to
each and every doorstep in vibrant India.

Conclusion
Though we have tried to incorporate the learning from global postal reforms and have
provided comprehensive recommendations covering all aspects based on our
understanding of the Indian postal scenario. But this is a very old institution, perhaps
one of the oldest and thus it has developed many facets along the course of its
evolution. Understanding such an institution with the miniscule amount of experience,
understanding and time available to us is necessarily going to be limited. Thus the
reforms that we have suggested are indicative and more so for the purpose of
highlighting issues rather than being definitive solutions.
Bibliography
1. Annual report 2000-2001, Department of Posts, India
2. Annual report 1999-2000, Department of Posts, India
3. Annual report 1998-1999, Department of Posts, India
4. The Indian Post Office Act, 1898
5. The fifth report - Expenditure reforms commission, Government of India,
March 2001.