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

th

On 24 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 ............................................6Postal reform
process ...........................................................................................
..7Phase 1 Transformation to a Business Culture (1995
1999)............................7Results Phase
1................................................................................................7Ph
ase 2 Major restructuring and re-design (1999
2003) .................................7Learnings from case
study ......................................................................................8
The Indian
Scenario.............................................................................................
....8
Organisation Structure of
DoP..............................................................................10Issues in
Indian Postal
system ..............................................................................10Struct
ural
Issues .............................................................................................

..11Legal Structure and

Competition ......................................................................11Expe
nditure Revenue Gap and Tariff
Control...................................................12Cross Subsidisation Vs
Budgetary
Support.......................................................13Technological
Issues ........................................................................................13
Under utilisation of Fixed
Resources................................................................13Roadmap
for restructuring of
DoP........................................................................14Rationale for
the Road
map ..............................................................................15Reform
of Indian Postal
Sector.............................................................................15Legislat
ive
Changes .........................................................................................
15Subsidy
Rationalisation................................................................................
....16Expenditure
control..........................................................................................1
6Employees and Extra- Departmental
Agents.................................................16Post Office Savings
Bank: ............................................................................17Mail
Motor
Services.....................................................................................17
Civil
construction .......................................................................................
..17Accounting....................................................................................
...............17House
keeping..............................................................................................1
8Reduction in Post
offices..............................................................................18Postal
Land and
Buildings ............................................................................18Urban
Postal
Service ....................................................................................19Rur
al Postal
Service......................................................................................20Ad
ditional revenue
generation..........................................................................21Speed
Post....................................................................................................

21Satellite
Post.................................................................................................22
Business
Post................................................................................................22
Partner in E-commerce
logistics ...................................................................23Express
Parcel
Post.......................................................................................23Media
Post....................................................................................................
23Retail
Post....................................................................................................
23Valuable customer
database..........................................................................23Financial
Services ............................................................................................2
4Indian
Scenario.............................................................................................
24International
Scenario...................................................................................24Inst
antaneous International Money
transfer...................................................24Domestic electronic fund
transfer .................................................................25Mutual funds
and
securities ..........................................................................25ATMs....
.......................................................................................................25
Money
Changer............................................................................................2
6Pension
payments.........................................................................................26
Billing collection &
delivery.........................................................................26Computeris
ation of
DoP...................................................................................26Objectiv
es of

computerisation.......................................................................26Curr
ent
status ...............................................................................................2
7Future
Plans..................................................................................................2
7Improvement in old
services.........................................................................28New
Services based on
IT.............................................................................28ET
Bills.....................................................................................................
...28ETMail.....................................................................................................
...29ET BillPay.................................................................................................29
ET
Warehousing...............................................................................
..........29Software
development ..............................................................................
....30Digital
Certification................................................................................
......30Postmarking .....................................................................
............................30Efficiency
Gains...........................................................................................
....30Cultural
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 selffinancing. 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, socioeconomic 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
2
3
4
5

Macro initiatives like corporatization and setting up of

revenue tariff commission
Expenditure control methods
Study of some recent initiative by the DoP as regards their
revenue potential and market acceptability
Study of technology initiatives by the department and its
future evolvement
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-tobusiness 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 Indonesias 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:

1
2
3

1
2
3

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
Develop appropriate legal and regulatory frameworks that
would effectively create the enabling environment for the
provision of the above services in a sustainable manner
Strengthen institutional capability and capacity in the
relevant agencies and administrations [e.g., PT Pos
Indonesia]
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 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 199293 to 1998-99 to reach Rs. 15909.7 million, competing for top
place with food and fertiliser subsidies.

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.

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.
2

Annual report 2000-2001, Department of Posts, India

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
3
in the POSB is about Rs.25, 000 crore
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
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

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-tobusiness 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:

2
3

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.
Letters solely concerning the affairs of the sender or
receiver thereof, sent by a messenger on purpose
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 199899, an increase of 1632.8 per
4
cent. The postal deficit in 1999-2000 was Rs.1595.82 crore.
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.

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
5
vacant plots of land. 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.

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.

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.
6 months

Similar to the regulatory

regime obtaining in the precorporatised
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
The existing governmentowned-and-operated postal
service is
12-15 Months
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

1
2

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)

Rationale for the Road map

Determine
tariffs and
protect
consumer
interest.

1
2
3

4
5

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
Extensive learning has been derived from the Indian
experience in other sectors like telecommunications
especially the evolution of TRAI
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
Experience of other countries mostly UK and other
European countries has also been relied upon which have
corporatized their postal department
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
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
Posts external environment is the continuance of Posts 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 cant 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 transporters costs, is high.

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
7
civil and 6 electrical divisions spent Rs.48.72 crore in 1998-99.
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 extradepartmental
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 cooperatives,
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 pricesensitivity 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 capitalintensive, 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 nonpostal 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 just 151 St and UT post offices offering this
8
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
th
th
end of 9 five year plan by installation of 227 (77 in 8
plan) VSATs and 2040 ESMOs
3 Computerisation of Speed Post facilities: 50 SPCCs have
th
been covered in the 9 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
Public Grievance Redressal: This activity targets
connectivity of all Customer care centres to the
countrywide campus. 228 Customer care centres are
th
earmarked to be set up by the end of the 9 plan.
Philately: All 53 philatelic bureaux, and the headquarters
th
branch, have already been computerised during the 9
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
Post offices

333 Head POs 14050 Sub

POs
6.2 crores

Mail offices

140 registration centres

72 transit mail offices 54
28.78 crores
Head record offices

Speed post centres

64 SPCCs

3 crores

Customer care centres

611 CCCs

19.8 crores

Inventory management

31 PSDs

2.48 crores

Administrative units

506 units

68.5 crores

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 semiurban 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 Ecommerce 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
1. 3. Making post offices multi-service centres playing
the roles of
2. a. Mail centres
3. b. Information hubs
4. c. Local warehouses
5. 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 multidimensional 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
2
3
4
5

Annual report 2000-2001, Department of Posts, India

Annual report 1999-2000, Department of Posts, India
Annual report 1998-1999, Department of Posts, India
The Indian Post Office Act, 1898
The fifth report -Expenditure reforms commission,
Government of India, March 2001.