on Jul 6th, 2009 in Strategy & Public Policy | 27 comments
 
In developing countries, postal services are often critical to reaching a vast underprivileged populace. How do posts in these countries cope with the tension between their universal service obligation and financial viability? A look at today’s India Post offers some insights. First founded under British colonial rule 150 years ago, India Post connects India’s people through a network of more than 150,000 post offices. More than 80 percent of these post offices are in rural areas, where residents primarily depend on postal services to communicate with the outside world. In India’s urban areas, however, middle class consumers have options. They also rely on the professional services of private couriers or the Internet. India Post has shown consistent losses. In recent years, private-sector competitors have siphoned off revenue, and costs have risen dramatically. Not surprisingly, given its financial difficulties, India Post’s widespread rural presence has drawn a lot of criticism. The Indian Government subsidizes more than half the cost of rural post offices, but they are still unprofitable. Critics argue that many are unnecessary and should be closed. Another common prescription for India Post’s losses is privatization. Proponents believe that privatization would improve the quality of services. To improve its financial condition, India Post is experimenting with options such as providing investment and emailing services to customers in rural areas. It already runs the largest savings bank, with a customer base of more than 170 million people. Rural and urban post offices also offer a variety of insurance products. Another initiative is micro-finance. In some rural areas, India Post offers loans to small businesses that may be denied credit by mainstream banks. Many of these services have helped offset India Post’s losses while at the same time providing financial services in deprived areas. There is hope for India Post’s future profitability. India has experienced phenomenal economic growth in recent years, and as a result, there is great potential for growth in postal services. To capitalize on the opportunities of India’s economic progress, India Post is trying to cater to the demands of the growing business sector by providing international money transfers and other services. In urban areas, India Post is exploring providing access to ATMs and non-postal retail services like train and bus reservations. India Post could also consider expanding these types of services to rural areas. The rural population would greatly benefit from these and other services such as faxes and electronic money orders. There are many options for India Post to leverage its network. By improving its infrastructure, technology, and customer service, India Post can continue its important role in India’s economy. What kind of a business model should India Post adopt? Do you think India Post’s experience providing universal service has any lessons for the United States Postal Service? This blog is hosted by the OIG's Risk Analysis Research Center (RARC).

27 Comments

Same thing would happen here if there would be privitization. The private industry would take the cream off the top and ignore the hard to get to, less revenue producing areas. Do rural folks get cable tv? Nope, only the urbanites.

Thanks Dave. You're right that implicit in the idea of providing universal service is the averaging of high cost and low cost provision together. This does make a universal service provider vulnerable to cream skimming.

The issue I see is that the Post in India is involved in auxialliary enterprises and most likely at the expense of improving the postal service. This seems to me to be much like the railways and airlines in Pakistan where the transport system gets worse but these transport sectors perform okay financially but it all comes from the auxialliary enterprises. The Post like other government corporations need to focus on their core business and leave the others stuff to others- private or public.

I second Roger to some extent, with the exception that Post should first clearly define what is its core business. One thing they should look at abroad is what is working for both public and private postal services. Lessons can be learned from examining FedEx. The merger of FedEx and Kinkos has now allowed FedEx to make itself into a broad communication center. You can go there not only to have traditional mailing services, but you can also fax, use the web, do word processing and graphics.

All these services are essential to communication and are most likely lacking in rural parts of India. So if India Post can realign its core mission to be an enabler of communication in all its modern forms, then they can concentrate at delivering essential services to their customers and leave things that are wildly outside of their domain such as banking to agencies that are better equipped to handle such matters.

The issue of what is or is not the core business of a post is important. In my personal opinion, posts should be able to engage in auxilary services, but they should focus on ones that they are uniquely suited to provide.

I would not agree that posts should focus on postal operations alone and not provide non-postal services like retail and financial services. As demand for letter delivery is diminishing due to increasing electronic diversion, especially in the developed world, an extensive postal network can be exploited to generate additional income from such non-postal activities.

I think there is a fine balancing act. I do believe that the post office should be avaiable to all people within reasonable constraints. I remember hearing a NPR radio report in 2008 that talked about how the US was cutting off service to so very remote place that had no roads and the only way to get there was by private airplane. They paid $42 cents for a stamp but it cost the US Post Office $4,200 to deliver that one piece of mail. I also think since they have the infrastructure they can capitalize on it with other services as others talked about. This is more difficult that one might think espically because the culture and reward systems of new ventures is very different from the mindset of subsidized government run organization.

Thanks Kirsten, it is important to consider what the appropriate bounds of universal service is.

India Post could also borrow lessons from UK's experience in reforming its postal service. One successful measure was to improve access to its service by opening postal counters in shopping malls and department stores. Easier access enabled Royal Mail to reach a much broader range of consumers. Customers found it more convenient to drop by such counters than making a special trip to a highly bureaucratic post office. This not only improved its revenue but also influenced consumer behavior patterns. Similarly, maybe India Post should explore ways to increase access to its services.

The U.S. Postal Service also offers postal services in stores, gas stations, and other commercial businesses through contract postal units.

For less than Rupees 3 (about 8 cents) a letter reaches across a sub-continent, connecting a rural hamlet in the himalayas to a metropolis by the sea 2500 kms away. Millions of India's illiterate depend on their local 'postman' to read, and sometimes even write their letters for them. Village houses with no numbers receive letters without fail. The Indian postal system, for all its flaws, is one of the threads that hold India's millions together, the other being the Indian Railways. India's urban middle-class has little use for either, what with low-cost private airlines and courier services. But India has 800 million people who have reason to be grateful to both these hallowed public institutions. A nation-state is not run for profit....the ultimate goal is to improve the lives of its people. The Indian postal system does just that, everyday. To know how they do so, you need to see the smile in the face of a mother in the forests of Jharkhand who just got a postcard from her migrant laborer son in Delhi...

Thank you Pritam for the beautiful description of the importance of India Post to India's rural residents.

I'd like to concur with Uma's commentary above. Yes, indeed posts should exploit their networks to generate more revenues by offering non-postal services/products, especially in rural under-served areas. But not merely to generate more revenues (which is a good thing to support financing the network) but additionally to offer services/products for those underserved markets that the private sector cannot profitably do. It's a win-win situation. The posts turn cost centers into profit centers and provide needed services for underserved areas.

Uma and Radix lecti, thanks for your comments. Raising additional revenue while helping the underserved is a win-win solution.

Thanks for your comment.

Government of India should slowly start reducing subsidies to Post Office Department and if need be increase prices of postal deliveries at a later date and try to get professionals to run it, type of PPP model has to be generated and make it self-reliant and self-sufficient. Also, additional services like courier service, etc should be emphasized and focussed. Losses, if any, should be accountable and performance linked incentives should be given to employees to be more efficient and effortful.Additional services like ATM's should be encouraged accross all Post Offices in country and connectivity should be focussed either through internet or other modes. All this should be advertised in print and media for masses to be aware of its benefits. Salaries of postmen, who are paid miserably should be increased so that they are motivated and also to encourage more people to join Indian Post.

Post ofices in India are highly inefficient presently and still work on colonial British system introduced 100 years ago.The whole system is lethargic and too slow. It needs total revamping.Post Master in the US is elected.Here they can employ professionals.Paying Rs 5 for a local postal envelope is too high in a country where 80% population don't even earn $1 a day. Bringing in efficiency will lower the cost of postal services and at the same time postal staff can be paid more.The staff is a frustrated lot. There might be a political hand to subdue postal services to help couriers.Couriers have taken away all the business from post offices although their cost is high.Rightly this business should have been with Post Offices.Also they should introduce internet connectivity and ATM centres for facilitating business and earning revenues.

I am waiting for my admission letter from a UK University, they mail it to India.
I didn't receive it yet, 22 days left.
How I can understand where is my letter?Do you have any contact number or email address which I can ask about my letter?

I would be very grateful if you could kindly help me.

I have lived in both US and India so my comments come from my own experience. USPS and Indian Post have two very different tasks and trying to create a parallel between the two is wrong and a futile exercise. Learnings between the two system don't apply !!

IPS has to serve as a connection between people who make less than a dollar a day, provide affordable services to them so it has to be subsidized by the govt. It also provides employment to hundreds of thousand and provide a level of personal service ( like writing letter for illiterate, helping them with a savings account).

USPS on the other hand is a communication giant which has to provide diversified services at similar quality as FedEx at a cheaper price to stay in competition. They lose money on 42c envelopes (loss leader like oil changes for auto repair shops) but make profit on other services. They have to compete with Fedex in this other services domain.

Someone commented on more access to Indian post services by making available postal services in malls. dear, Indian post already has too many post offices in urban areas.
Another person commented on making it more efficient, cutting costs thereby increasing postman salary and making post services cheaper but didn't give any concrete examples. Modernization and computerization can bring more efficiency in the system but always come at very high cost. trying to boost employee morale by giving them more salary for a job which doesn't requires any skill set seems odd. There are a lot of young unemployed people who will be willing to do the same job for even 60% of the salary. However i don't think that employee morale is low in indian post.
They seem inefficient because while USPS guy has a truck to make his deliveries; an indian postman still uses the age old bicycle to go around.

The following link is more precise in tracking USPS mail in INDIA.

http://ipsweb.ptcmysore.gov.in/ipswebtracking/

The appropriate bounds of universal service is more than welcomed.

Extraordinary to find this out. I've always been staggered by the efficiency of India Post, and wondered how they've managed to achieve this. Now it seems simply by pumping money into it... I will say however that India Post's old fashioned model highly impressive, at least as a consumer

150,000 post offices. Most of the post offices are inefficient from what I understand. Being they are in Rural areas, most of the general population has limited access to them. Do these private sector postal services monitor the class of people who use them? Keeping the poor people from communicating to the outside world.

Indian Post offices are spread across in evry village and town and cater to the rich as well as the poor. the poor use this for saving a dime to the future and the rich too were very much involved with the tax saving schemes until the prt sector jumped in with their more lucalitive options. The speed post is also a very efficent service and moreover it is cheaper the the courier service providers especially when it comes to overseas congigment. In the coastal belt it is very popular with the foreign tourist too.

Indian postal service is not in loss. We all knew there are more than 150000 p o across India. The Dept has itself is paying pension amounts from their income but for other services in India there is another dept. Postal Dept of India working as an agent for ministry of finance for canvasing of Savings A/c and deposits. Ministry neither raised the commission amount for canvasing A/cs nor increased interests for A/cs. from the side of Ministry no good approach is receiving , regarding the rate of interest. Interest rate continuously reducing. It is utter foolishness regarding the privatization of Post offices in India. Then postal service will become Postal Business. I think Post office in India provides service and more committed. It is very unfair that if we don't receive a letter that posted and blame the Dept only. I posted many article through India post i have no complaint regarding the service. Most of the time it is from the mistake of sender which delays or non receipt of articles. Now a days people don't know how to write an address on letters. Not have legible handwriting. Write address correctly legibly and your letter reach in on time.

India Post’s future profitability. is getiing bigger and bigger, One thing they should look at abroad is what is working for both public and private postal services.

It is not a reliable service at all.

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