Professional Documents
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A Project Report
Submitted to
Prof. R Jain
Prof. S Morris
Prof. G. Raghuram
On
24th August 2001
By
Group 5, Section A
Amit Parakh
Pritish Kandoi
Lokesh Garg
Roshi Jain
Nishit Bhatia
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
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
Indias 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.
including
commercial
exploitation
of
properties
held
by
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-toindividual 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.
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.
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.
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
mans 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.
The fifth report March 2001: Expenditure reforms commission, Government of 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
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, businessto-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.
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.
objective
should
be
to
prepare
the
ground
for
9 Months
12-15 Months
12-18 Months
(ii)
(iii)
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 cant be upgraded needs to be examined.
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
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.
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.
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.
the transaction and has generated forex exchange worth $400,000 in two months with
just 151 St and UT post offices offering this service.
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.
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,
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) VSATs and 2040 ESMOs
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
Post offices
Funds required
6.2 crores
Mail offices
28.78 crores
64 SPCCs
3 crores
611 CCCs
19.8 crores
Inventory management
31 PSDs
2.48 crores
Administrative units
506 units
68.5 crores
20 offices
5.87 crores
TOTAL
134.63 crores
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
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.