Upgrading Indian postal services
The British East India Company established its ‘Company Dawk’ system, initially by opening offices in Bombay and Madras in 1688, and then by a more organised network in the mid-18th century. But ever since the Post Office Act of 1837 – granting exclusive rights to distribute letters within the company’s ‘territories’ – came into force, the organisation has had a virtual monopoly for over 150 years.
The system of snail mail, however, is on decline worldwide, and India is no exception. Private courier services, electronic mail and mobiles and SMS (short messaging services) have spelt the death knell for the most lucrative operations of the Department of Post (which has re-branded itself as India Post).
Postal services in India – as in most other parts of the world – are subsidised, especially those divisions that cater to the rural areas and far-flung places. Unfortunately, new technology has meant that most urban residents and commercial organisations, who usually do not mind paying higher rates for postal deliveries, have abandoned the postal department’s services, depriving it of much-needed revenues.
Worse, successive governments in India also failed to invest in the organisation or prepared it for future challenges – unlike in some of the western countries such as Germany – with the result that it is today staring at an uncertain future.
The government has tried to come to its rescue by threatening to impose curbs on the private courier sector by amending the Indian Postal Act and prohibiting private operators from accepting packets weighing less than half a kilo – which means the bulk of their business. It also wants courier firms to contribute about a million rupees each every year to a universal service obligation fund.
However, stiff opposition from private (including international) courier service providers has resulted in the government holding back the move. The postal department, meanwhile, continues to haemorrhage.
According to the Economic Survey for 2007-08, which was presented to the Parliament last month by Finance Minister P. Chidambaram, the department’s deficit is expected to shoot up by 18 per cent in the current fiscal ending March 31 – from Rs12.5 billion in 2006-07 to Rs14.8 billion (about $370 million).
“Redefining the rationale and the delivery mechanism of the subsidy needs to be addressed urgently, more so in view of the fact that a large number of private couriers are operating in the market without any regulator,” the survey noted. Questioning the rationale for subsidies, it pointed out that user-charges accounted for just 78 per cent of the costs of the department.
And as in many other government departments, soaring pension liabilities are eating into a chunk of its revenues; for India Posts, pension liabilities account for 22 per cent of its expenditure. With a bloated workforce, this figure is unlikely to reduce over the coming years. The Economic Survey was blunt about the impact of this liability: “If this amount is excluded then the revenue of the department roughly covers its expenditure,” it points out.
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THE government introduced a bill to amend the Indian Post Office Act, 1898, in 2006, hoping to professionalise the department. But its inability to hammer out a consensus with different political parties and interests has seen virtually no movement of the bill in Parliament over the past two years.
There are over 155,000 post offices located across the country – India ranks among the top-three in the world in terms of post offices – including in the most remote regions. Nearly 140,000 of the post offices are located in rural areas. Unfortunately, a little over five per cent of total post offices have computers or other modern gadgets.
The department has ambitious plans to provide a range of financial and other services to millions of consumers, and utilise the revenues to subsidise its services in the rural areas. But in the absence of computers and even modest commercial infrastructure and trained personnel, most of these proposals remain only on paper.
The government wants post offices to take on the role of disbursing funds from the National Rural Employment Guarantee (NREG) programme from April 1. Another move is to hawk over-the-counter drugs and herbal medicines at post offices, to generate revenues.
India Posts has already tied up some with pharmaceutical firms in states like Maharashtra and Andhra Pradesh and non-prescription medicines are being sold, especially to rural consumers.
The few computerised post offices will also be equipped to make railway reservations and provide instant money order services. India Post has also entered into partnerships with counterparts from other countries and even international money transfer giants like Western Union and courier majors like FedEx.
According to IMG Khan, secretary, Department of Post, it would sign memorandums of understanding with postal departments in the Gulf region, home to a large number of expatriate Indians, most of who remit large amounts to India every month. India Post already has a tie-up with its counterpart in the UAE for speedy transfer of funds.
But because of lack of infrastructure, the services can be availed of by only a small percentage of expatriate workers, as post offices in rural areas are still not capable of handling the transfers.
India Post is also in talks with postal departments in the US, France, Switzerland and some Gulf countries, seeking advise on diversifying its offerings, to counter the sharp decline in revenues and the widening deficit. Last year, the department signed an agreement with Deutsche Post relating to logistics, warehousing operations and financial services.
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THE postal department is now confident of marketing financial products through its network of offices. It recently entered into tie-ups with banks and insurance companies to sell their products.
Last week, for instance, India Posts – which has a full-fledged licence for foreign exchange transactions – announced a foray into the lucrative business. It joined hands with Centurion Bank of Punjab and will be providing foreign exchange services – dealing in currencies of about 100 countries – through a network of over 30 head post offices in nearly a dozen states.
According to Khan, the department will also consider joining hands with other banks to disburse home loans, especially in rural areas.
Tata AIG Life Insurance, a joint venture between the Tatas and the American insurange giant, has also entered into a partnership with India Post to provide premium renewal services to its customers.
About 5,000 post offices across the country will accept insurance premiums on behalf of Tata AIG. New players in the financial services sector, who do not want to invest in brick-and-mortar infrastructure (with a physical presence by way of branches and offices), are eager to tie-up with the postal department, to leverage its vast distribution network.
The government is also keen on the setting up of a special purpose vehicle, the Postal Land Development Authority (PLDA) – on the lines of the proposed Rail Land Development Authority – to commercially exploit the vast land holdings of the department.
India Post has thousands of acres of vacant land, including in major cities, which could be leased out to private parties, fetching it lucrative returns. Initially, the PLDA will take up development of around 2,000 vacant plots.
In cities like Mumbai, vacant land owned by government departments and public sector undertakings is encroached upon by the land mafia. Initially, slum colonies sprout on these public lands – where migrants have to pay hefty rents to stay in the shanties – but gradually, they manage to sell the land to developers, who provide cheap alternative accommodation to the poor, and construct skyscrapers, whose fancy apartments are sold to the affluent.
The government and its departments – the original owners of the land – lose billions of rupees in revenues, while the rest of the players make a fortune. The new special purpose vehicles are being set up to prevent such travesties.