The Lost Office
For every rupee it earns, India Post spends two. Those in charge say the deficit is the cost of providing an essential service to the nation. What they don't say enough is that even with that social obligation, India Post could be profitable, reports Bhanu Pande with Souvik Sanyal
For an entity that is in the delivery business, speed in decision-making is not a strength of the department of post. From idea to implementation, the department has taken 16 years to computerise and connect all its 155,000 branches; it’s taken 10 years to enter the business of managing the movement of goods for companies. Most recently, it’s taken four years just to commission a feasibility study for its biggest transformation yet — becoming a bank. In the last 15 years, as electronic modes of communication have trampled on physical forms, the department has tried to change, only to give into its worst self, and continue down the road of irrelevance and mounting losses. In 2009-10, it lost Rs 6,641 crore, on revenues of Rs 6,266 crore. In other words, to earn one rupee in revenues, it spent Rs 2. In 1997-98, it gave itself a new, contemporary and meaningful identity: India Post. Except it never carried through that exercise the way it could have and it sometimes even promised to. Several global logistics powerhouses have approached it for a partnership, but are left shrugging their shoulders. “We don’t know what India Post wants,” says a senior executive of a global logistics firm that is waiting on India Post for four business proposals made to it two years ago. “Dealing with them demands a great deal of patience due to the slow decision-making.” The ultra-slow decision-making is compounded by ultra-fast personnel movement at the top. In the last 11 years, India Post has had six chiefs. “The department is a victim of its age,” says BN Som, who headed it between 1998 and 2000. “It has failed to maintain continuity of vision under successive leadership.” A proposal in one chief’s tenure tends to lose steam in another’s. In a world that started and ended with it, this wouldn’t be catastrophe. But in a world where it is competing against private players, and is punching below its weight, time is running out for India Post. And it doesn’t have a big plan or an overriding sense of purpose to turn this red ship around. Radhika Doraiswamy, the current captain of the ship, is looking to technology to cut costs and push new business initiatives. “Riding on technology, we hope to become a self-sustaining organisation by 2013-14,” says the current secretary-posts & directorgeneral of the Postal Services Board. It’s a statement that clings to hope and numbers the department has never achieved before. John Samuel, general manager–business development, shows a growth-projection sheet that calls the department to grow at a multiple of its historic rate. For example, in the business post segment, it projects 40% a year growth till 2013-14, against 15% and 20% in the last two years, respectively. Even the government, which makes good the department’s deficit every year, doesn’t see a turnaround. Budget 2011 has put aside Rs 5,108 crore for India Post for 2011-12. And in 2010-11, it overshot what the government had budgeted for it by 2,300 crore.
MONEY DISORDER
About 90% of its expenses go towards salaries of its 475,000 employees in 155,000 branches. It can’t, the department says, shut down commercially unviable branches because there is an India that uses these services and can’t afford to pay commercial rates. At one level, it’s a plausible argument. At another, it’s a fig leaf. Sure, the business of post offices is about meeting a social obligation. But though this part of the business — stamps, unregistered and registered letters, and money orders — brings in only 20% of revenues, it uses up most of the workforce. And mostly, unproductively; collectively, these employees could be doing a lot more. The challenge for a post office is to make employees do more through businesses that have synergies with postal services, but run on commercial terms. Essentially, use the surplus in the commercial businesses to bridge the postal deficit. Post offices around the world have branched out into logistics services, financial services and banking to turn profitable. For example, Deutsche Post in Germany, Australia Post and New Zealand Post, to name just three. It’s what India Post also has been trying to do, in fits and starts, for the last 15 years. But it has delivered either moderate successes or stillborn failures. At about Rs 2,000 crore, the delivery business accounted for just 30% of India Post’s revenues in 2009-10. It’s had a headstart of decades in the delivery business. Its reach is a multiple of that of all private players combined. Yet, its market share in the Rs 15,000 crore domestic delivery business (letters, parcels and logistics) is just 20%. That’s partly due to its late entry and partly due to its stiffness in operations. For example, its delivery business is sliced into three services: ordinary post, registered post and speed post. The last, speed post, is a premium service, akin to private courier. Yet, its tariff for packets weighing up to 50 gram is fixed at Rs 25, whatever the destination. It loses out both ways. On short distances, where private players charge below Rs 25, it loses out on business. On long distances, where private players charge way above Rs 25, it loses out on revenues. “The department is plagued by its inability to comprehend that things can be achieved through a business mindset,” says SC Mahalik, who headed the department between 1994 and 1996.
SNAIL MAIL
The eternal delay in computerisation and networking is the product of such a mindset. At present, only 8,000 of its 155,000 branches are inter-linked. The rest function as islands, hooking up only physically. It’s only last year that India Post asked Accenture to hook up all its branches and this is expected to happen by late-2012. Even after the technology connections are finalised, employees will have to be trained. “Technology will only be productive when it is leveraged to harness its immense outreach to underserved areas, says Gautam Bhardwaj, managing director, Invest India Economic Forum, who was part of a committee on postal reforms in 2009. “Otherwise, such large infrastructure is like a hospital without patients.” Mahalik first initiated the technology push in 1994. But he retired in 1996, and the plan went cold. Som revived it in 1998, but again it went cold. Similarly, India Post is late in the three businesses it has identified for revenue jumps to post a turnaround by 2013-14. The big one is logistics — managing the movement of goods for companies. The idea was floated about a decade ago, but launched only in 2007-08. “Better late than never,” says Samuel. This is currently a Rs 50 crore business for India Post and it is looking to increase it to Rs 1,000 crore by 2013-14. “We hope to utilise our spare capacities and bring it to optimal levels,” says Samuel. It has an impressive client roster: Godrej, Coca-Cola, ITC, Dalmia Cement, P&G and Cadbury, among others. For example, it distributes Godrej’s Chotu Kool refrigerator in rural Maharashtra. P&G used it to distribute products in rural Uttarakhand and Pawan Hans to ship helicopter parts. However, an official from one client told us, on conditions of anonymity, that its arrangement was only short-term. Som is sceptical about India Post’s logistics offering. “Why should clients come to you when your means of delivery of larger consignments is the same as those for mails and letters,” he asks. “It (logistics post) is nothing but a superficial tweaking of old processes, infrastructure without building a serious expertise behind it,” adds a former India Post official. All this places a question mark on the 20-fold increase in revenues in three years the department is targeting. The second big revenue mulitplier it is looking at is ‘global business division’, which delivers letters and goods outside India. Set up two years ago, it is a Rs 100 crore business, with a target of Rs 310 crore for 2013-14, which again means a rapid scale up. At present, the division is forging international tie-ups. “We are picking up cues from global postal services,” says Doraiswamy. The one business that India Post has grown well is ‘business post’ — a dedicated mailing facility for corporates. So, for example, India Post picks up a company’s annual reports from the press. It has the list of the company’s shareholders and it ships the reports to them. Doing work like this, it posted revenues of Rs 721 crore in 2009-10 and expects to cross Rs 1,000 crore this year. It has about 340 points of contact, 100 of which are housed in company premises.
REVENUE STAMPS
Even if these initiatives grow well, they won’t erase the Rs 6,000 crore deficit. In all the transformational talk, what’s conspicuously missing are the big ideas. “The postal service has no idea of the kind of assets it is sitting on,” says Mahalik. Like setting up a bank. By current numbers, it would have five times as many branches as SBI, the pole sitter. About 45% of India Post’s revenues already come from earning a spread on its postal savings float and from commission earned by selling small savings schemes. A bank is a natural extension. “it has the reach, but not the expertise,” says Parveen Kumar Anand, executive director, Punjab & Sind Bank. Another example is the department’s land holdings. Besides its spacious post offices, it has about 1,800 plots, totalling about 500 acres – about one-tenth the size of Noida. “Many plots are in prime locations,” says Mahalik, who had recommended selling or leasing out this space. Another proposal is to move its administrative offices, which are mostly in prime locations, to cheaper suburbs, as UK did. Its headquarters in Delhi, Dak Bhawan, is a six-floor, 25,000 sq m building in the heart of the capital. “It can fetch a sale value of Rs 700-800 crore or an annual rental of Rs 60-75 crore,” says the head of a real estate consultancy, not wanting to be named. Satish Kaushal, executive director–government services, Ernst & Young, says the department needs to encourage public-private partnerships, especially for remote areas. “Revenues can be generated by asking private companies to leverage India Post’s infrastructure,” he says. “You can even develop financial solutions.”
WHERE’S THE POSTMASTER?
It comes down to taking decisions, which neither the political nor the bureaucratic leadership have shown an inclination to. India Post comes under the ministry of IT & communications. “Posts is too low brow,” says Bhardwaj of IIEF. “It lacks the glamour of telecom for a minister’s consistent interest.” A member of one of the reform committees says bureaucrats haven’t pushed enough. “There’s no financial accountability on the bureaucrat. So, nobody wants to rock the boat,” he says. Som, who has worked under two ministers, says the onus lies on the secretary. “Ministers are what bureaucrats make them,” he says. “I have always had full attention from my political bosses.” Globally, the focal point of postal reform has been privatisation (Deutsche Post and British Post) or corporatisation (US Postal Service and Australia Post). “As of now, there’s no proposal for corporatisation,” says Doraiswamy, but she doesn’t rule it out. A high-ranking India Post official says a mid-way model is being discussed. It envisages the department floating subsidiaries through special purpose vehicles. Each of these — for example, postal services, banking, and insurance — can function as independent business units. “They subsidiaries can generate their own funds, invite private participation, draw out their own strategy, and enjoy greater freedom,” he says. As it waits, India Post is drifting into ignominy. Till 1985, there used to be a department of posts and telegraph. It was then split into three. Telecom regulation was given to the department of telecom, which has presided over, if not abetted, a corrupt licencing regime. The telecom operations were hived off into a company called BSNL, which was once flourishing, but today has cash for just one more year. The postal operations were retained by the department, and it is on its way to becoming the next BSNL. Unless it takes some decisions. Quickly.
MONEY DISORDER
About 90% of its expenses go towards salaries of its 475,000 employees in 155,000 branches. It can’t, the department says, shut down commercially unviable branches because there is an India that uses these services and can’t afford to pay commercial rates. At one level, it’s a plausible argument. At another, it’s a fig leaf. Sure, the business of post offices is about meeting a social obligation. But though this part of the business — stamps, unregistered and registered letters, and money orders — brings in only 20% of revenues, it uses up most of the workforce. And mostly, unproductively; collectively, these employees could be doing a lot more. The challenge for a post office is to make employees do more through businesses that have synergies with postal services, but run on commercial terms. Essentially, use the surplus in the commercial businesses to bridge the postal deficit. Post offices around the world have branched out into logistics services, financial services and banking to turn profitable. For example, Deutsche Post in Germany, Australia Post and New Zealand Post, to name just three. It’s what India Post also has been trying to do, in fits and starts, for the last 15 years. But it has delivered either moderate successes or stillborn failures. At about Rs 2,000 crore, the delivery business accounted for just 30% of India Post’s revenues in 2009-10. It’s had a headstart of decades in the delivery business. Its reach is a multiple of that of all private players combined. Yet, its market share in the Rs 15,000 crore domestic delivery business (letters, parcels and logistics) is just 20%. That’s partly due to its late entry and partly due to its stiffness in operations. For example, its delivery business is sliced into three services: ordinary post, registered post and speed post. The last, speed post, is a premium service, akin to private courier. Yet, its tariff for packets weighing up to 50 gram is fixed at Rs 25, whatever the destination. It loses out both ways. On short distances, where private players charge below Rs 25, it loses out on business. On long distances, where private players charge way above Rs 25, it loses out on revenues. “The department is plagued by its inability to comprehend that things can be achieved through a business mindset,” says SC Mahalik, who headed the department between 1994 and 1996.
SNAIL MAIL
The eternal delay in computerisation and networking is the product of such a mindset. At present, only 8,000 of its 155,000 branches are inter-linked. The rest function as islands, hooking up only physically. It’s only last year that India Post asked Accenture to hook up all its branches and this is expected to happen by late-2012. Even after the technology connections are finalised, employees will have to be trained. “Technology will only be productive when it is leveraged to harness its immense outreach to underserved areas, says Gautam Bhardwaj, managing director, Invest India Economic Forum, who was part of a committee on postal reforms in 2009. “Otherwise, such large infrastructure is like a hospital without patients.” Mahalik first initiated the technology push in 1994. But he retired in 1996, and the plan went cold. Som revived it in 1998, but again it went cold. Similarly, India Post is late in the three businesses it has identified for revenue jumps to post a turnaround by 2013-14. The big one is logistics — managing the movement of goods for companies. The idea was floated about a decade ago, but launched only in 2007-08. “Better late than never,” says Samuel. This is currently a Rs 50 crore business for India Post and it is looking to increase it to Rs 1,000 crore by 2013-14. “We hope to utilise our spare capacities and bring it to optimal levels,” says Samuel. It has an impressive client roster: Godrej, Coca-Cola, ITC, Dalmia Cement, P&G and Cadbury, among others. For example, it distributes Godrej’s Chotu Kool refrigerator in rural Maharashtra. P&G used it to distribute products in rural Uttarakhand and Pawan Hans to ship helicopter parts. However, an official from one client told us, on conditions of anonymity, that its arrangement was only short-term. Som is sceptical about India Post’s logistics offering. “Why should clients come to you when your means of delivery of larger consignments is the same as those for mails and letters,” he asks. “It (logistics post) is nothing but a superficial tweaking of old processes, infrastructure without building a serious expertise behind it,” adds a former India Post official. All this places a question mark on the 20-fold increase in revenues in three years the department is targeting. The second big revenue mulitplier it is looking at is ‘global business division’, which delivers letters and goods outside India. Set up two years ago, it is a Rs 100 crore business, with a target of Rs 310 crore for 2013-14, which again means a rapid scale up. At present, the division is forging international tie-ups. “We are picking up cues from global postal services,” says Doraiswamy. The one business that India Post has grown well is ‘business post’ — a dedicated mailing facility for corporates. So, for example, India Post picks up a company’s annual reports from the press. It has the list of the company’s shareholders and it ships the reports to them. Doing work like this, it posted revenues of Rs 721 crore in 2009-10 and expects to cross Rs 1,000 crore this year. It has about 340 points of contact, 100 of which are housed in company premises.
REVENUE STAMPS
Even if these initiatives grow well, they won’t erase the Rs 6,000 crore deficit. In all the transformational talk, what’s conspicuously missing are the big ideas. “The postal service has no idea of the kind of assets it is sitting on,” says Mahalik. Like setting up a bank. By current numbers, it would have five times as many branches as SBI, the pole sitter. About 45% of India Post’s revenues already come from earning a spread on its postal savings float and from commission earned by selling small savings schemes. A bank is a natural extension. “it has the reach, but not the expertise,” says Parveen Kumar Anand, executive director, Punjab & Sind Bank. Another example is the department’s land holdings. Besides its spacious post offices, it has about 1,800 plots, totalling about 500 acres – about one-tenth the size of Noida. “Many plots are in prime locations,” says Mahalik, who had recommended selling or leasing out this space. Another proposal is to move its administrative offices, which are mostly in prime locations, to cheaper suburbs, as UK did. Its headquarters in Delhi, Dak Bhawan, is a six-floor, 25,000 sq m building in the heart of the capital. “It can fetch a sale value of Rs 700-800 crore or an annual rental of Rs 60-75 crore,” says the head of a real estate consultancy, not wanting to be named. Satish Kaushal, executive director–government services, Ernst & Young, says the department needs to encourage public-private partnerships, especially for remote areas. “Revenues can be generated by asking private companies to leverage India Post’s infrastructure,” he says. “You can even develop financial solutions.”
WHERE’S THE POSTMASTER?
It comes down to taking decisions, which neither the political nor the bureaucratic leadership have shown an inclination to. India Post comes under the ministry of IT & communications. “Posts is too low brow,” says Bhardwaj of IIEF. “It lacks the glamour of telecom for a minister’s consistent interest.” A member of one of the reform committees says bureaucrats haven’t pushed enough. “There’s no financial accountability on the bureaucrat. So, nobody wants to rock the boat,” he says. Som, who has worked under two ministers, says the onus lies on the secretary. “Ministers are what bureaucrats make them,” he says. “I have always had full attention from my political bosses.” Globally, the focal point of postal reform has been privatisation (Deutsche Post and British Post) or corporatisation (US Postal Service and Australia Post). “As of now, there’s no proposal for corporatisation,” says Doraiswamy, but she doesn’t rule it out. A high-ranking India Post official says a mid-way model is being discussed. It envisages the department floating subsidiaries through special purpose vehicles. Each of these — for example, postal services, banking, and insurance — can function as independent business units. “They subsidiaries can generate their own funds, invite private participation, draw out their own strategy, and enjoy greater freedom,” he says. As it waits, India Post is drifting into ignominy. Till 1985, there used to be a department of posts and telegraph. It was then split into three. Telecom regulation was given to the department of telecom, which has presided over, if not abetted, a corrupt licencing regime. The telecom operations were hived off into a company called BSNL, which was once flourishing, but today has cash for just one more year. The postal operations were retained by the department, and it is on its way to becoming the next BSNL. Unless it takes some decisions. Quickly.
Talking Heads
“We are in the network business, and are now moving from a physical to an online network. Riding on technology, we hope to become a self-sustaining organisation by 2013-14”
RADHIKA DORAISWAMY
Secretary, Department of Posts
RADHIKA DORAISWAMY
Secretary, Department of Posts
“The department is a victim of its age. It has failed to maintain a continuity of vision under successive leadership. An initiative taken by one leader loses steam in another’s tenure”
BN Som Former Secretary, Department of Posts (1998-2000)
BN Som Former Secretary, Department of Posts (1998-2000)
“Technology is productive only when it is leveraged to harness India Post’s immense outreach to underserved areas. Otherwise, such large infrastructure would be like a hospital without patients”
GAUTAM BHARDWAJ
MD, Invest India Economic Forum
Source: The Economic Times dated 07.03.2011GAUTAM BHARDWAJ
MD, Invest India Economic Forum
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