Future of India Post – Rural Dimension

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Future of India Post Rural Dimension

- Harinder Singh

India has the largest Postal network in the world with 1,55,618 Post Offices at the end of

the financial year i.e. 31.3.2003 including 1,39,081 Post Offices in rural areas. At the time of

independence, India had 23,344 Post Offices, which were largely confined to urban areas and

selected villages. During the last 50 years it has grown almost seven times. On an average, a post

office serves an area of 21.13 sq. km & population of 6,602. At the time when the Indian Postal

Department was set up, only telegraph facilities were available in limited areas since 1851 and the

first Telephone Exchange was set up in Shimla as late as 1914 with the result that till the first

quarter of 20th

century the Postal Department was the only means of communication. All other

means of communication other than telephones which are existing at present like fax, internet,

email etc. have only developed during the last few years.

2. With such a large network the question invariably is whether such a large network is

beneficial to the common man or not. If the postal system enables to ensure optimal utilization of

its infrastructure then it can be said that the network justifies itself, but if the utilization is low then

there is a case for having a re-look at the existing infrastructure particularly in the rural sector. An

analysis of the various policy initiatives undertaken during the past five year plans would reveal

that the postal planning was based on a number of assumptions which have not fulfilled

expectations as there is a difference between the market demand and our policy assumptions as

the following table will show:

Sl. No. Policy Assumptions Reality

1. Whenever a post office is

established, it contributes to the

development of the area.

The reality is that economic

development leads to demand for postal

service and not the other way round.

The Postal Services network were to a

certain extent mandatory in the early

years of the 20th

century but as time

passes and rural sector gets linked up to

electronic means of communication

including telephone land lines,

importance of development of postal

network is continuing to decline except

in some remote, hilly and tribal areas.

Otherwise, development of roads,

telephones and local market to

encourage movement of agricultural

products has become more important.

2 If any post office is set up thenover a period of time its traffic

increases till the post office

becomes a profit-earning center.

As Savoor Committee and TalwarCommittee reports would reveal, a large

number of post offices have been

opened particularly in the rural sector

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without adequate justification and they

have not contributed to the increase in

traffic with the result that the traffic has

been static in the large number of rural

areas.

3 If the State Governments are

asked to contribute to the cost

of the post office, then the part

of the cost will be recovered.

NRC has been paid by some State

Governments only as first installment

and thereafter most State Governments

have not paid for NRC thereby

contributing the losses.

4 As rural post offices are opened,

the cost per post office is

minimal and remains static over

a period of time.

The reality is that since DA and other

allowances are being revised

continuously the cost per post office

continues to grow even if there is no

increase in traffic.

5 Post office has a Universal

Service Obligation(USO) and

therefore, the Govt. is duty

bound to open post offices

wherever they are required.

The extent to which this Universal

Service Obligation of the nation can be

met depends on the health of the

economy and the priorities and one

should remember that there is no such

thing as free lunch and somebody has to

foot the bill for this USO.6 As number of post offices

increase economies of scale

starts working to the advantage

of the post office.

Economies of scales work only when

the traffic is increasing faster than the

cost involved but as the traffic is static

or declining the economies of scales will

not work.

7 There are over 6 lakh villages

and it is important to provide

cheap and efficient service to allthe villages.

When many existing Branch Post

Offices(BOs) do not have any traffic, it

can be presumed with certainexceptions that the traffic will not be

adequate to justify opening of more

B.Os.

3. There is no doubt that the post office has enormous capacity and capability to provide

services because of its unique position but the problems have arisen due to over blown

infrastructure over the years which has not taken into account the cost involved and the extent to

which these costs can be met. During a survey conducted in 1973, it was noticed that 9 out of 11

Branch Post Offices were opened on the basis of questionable data, which was only to enable

opening of unviable post offices. This problem was compounded by the fact that during the period

starting from III five-year plan, targets were laid down and there was pressure on Postal Circles to


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open post offices even when many of them were not viable. In the 70s, invariably the targets were

received by the Circles in the last quarter of the financial year and therefore, a number of post

offices were opened in great haste ignoring the economic viability. This is not to suggest that the

infrastructure created is of no use but it is relevant to have a re-look and to emphasize on the

quality of infrastructure created with a view to ensure that optimal results are obtained. This is not

very difficult if only we take into account the reality of the situation.

4. It needs also to be emphasized that no social purpose will be served by opening post

offices, which do not generate any worthwhile work. Even if there is no increase in the cost, the

cost of operations goes up by 8% per annum as DA on Salary and Pension has to be paid to the

working employees and pensioners as the case may be. There are two ways of approaching this

problem; one is to cut down the cost of operations and the other is to increase the volume of

transaction provided, the business generated is economically profitable. Though down sizing

offers a real opportunity to cut down the cost, the fixed cost cannot be reduced as fixed costs

account for 90% of the expenditure including cost of salary, pension, diesel/electricity and rent

and other establishment matters. In India, the Department of Posts has no control over the cost ofinfrastructure as bulk of the cost comes from the Pay Commission recommendations and there are

well established interrelations with other Departments in this regard. Therefore, the possibility of

savings on salary and pension is very limited particularly after 5th

Pay Commission which has

increased the cost of operations fairly substantially after 1996. This has resulted in the

Department being out-priced by the private couriers who pay between 1/3rd

to 1/4th

the salary of

an average Postal Assistant or Postman for courier work. On the other hand, generating traffic is

also challenging because of monopoly culture and mindset prevailing for several years in the

Department. It will take years to develop a truly competitive culture as we are still being guidedby earlier monopoly culture even when our monopoly is there only on paper. Therefore, there are

very real problems both in marketing postal products and also in affecting savings through down

sizing. Ultimately, both the approaches will have to be adopted but in addition to the above the

criteria for opening of post offices would have to be revised substantially in accordance with the

post office traffic. The only workable criteria appears to go by cost and strictly by the work load

(minus time spent on Sub Accounts in the parent office which will not exist if the post office itself

is closed down.) The other two criteria namely distance and the population are of hypothetical

interest only because if the relevant rural area does not generate any traffic what so ever then thepopulation and distance are not material. It is pertinent to mention here that the Indian Post

Office Act 1898 confers monopoly on the post office for letter posts, but if letter posts itself is

running into a loss then it is unlikely that the post office can earn profit. Hence it is essential that

the pricing of the products should be such that it should generate profit as having a monopoly if at

all, in a losing product is of no economic use.

5. Therefore, it needs to be emphasized that laws of economics/marketing are asserting

themselves over legal monopoly of Post Office created through an Act of Parliament. All delivery

systems are now being controlled by the market and it is difficult to identify any delivery system

where monopoly has not been eroded through market forces. One can say, that there is complete

monopoly of the State in regard to printing of currency notes but it is also true that this monopoly

has also been eroded by credit cards and ATMs which reduce need for printing currency as


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economies are heading towards cashless transactions.

6. There are therefore, two alternatives in dealing with the existing situation. The first

alternative is to increase rural traffic although this may also lead to increased loss to the

Department as discussed above and also because a perusal of Table 15 of Annual Report 2003-04

of the Department would reveal that the average revenue earned by the Department in respect of

post card, letter cards, letters, money orders and speed post are less than the cost involved.

Therefore, an increase in the traffic may actually end up in increased loss for the Department. The

second alternative is to have an understanding with the Ministry of Finance regarding the extent of

subsidy to be given to the Department as a whole and there after the Department may be allowed

free hand to manage its postal operations in such a way that the Department is not able to exceed

subsidy promised. This may involve either closure of non remunerative post offices or increase in

rates of postal products or out sourcing postal services in rural areas. Para 3.2 of the Annual

Report 2003-04 of the Department indicates that Panchayat Sanchar Seva Kendras are useful for

retailing some basic services like sale of stamps and postal stationery. In this, the cost involved is

much less than normal postal system. If Ministry of Finance agrees to this arrangement then theextent of loss agreed upon can be treated as subsidy for a specific period as social obligation

towards the nation. This is all the more important as there is no single product existing or

proposed, which can wipe out the loss sustained by the Department to the extent of about 1500

crores per annum given the reality that the cost per employee goes up to the extent of around 8%

per annum as DA even when there is a decline in postal traffic.

7. The Department has completed 150 years of its existence and at the time when Postal

Department was created it served a very powerful purpose in ensuring linking all villages, towns

and cities. The traditions, conventions and the initiatives taken by the Department so far wouldmake any Department proud but it needs to be remembered that the past is no guide to the future

keeping in view the rapid changes in technology, organizational functions and labour costs

involved. Therefore, the Department has to draw upon its proud traditions but at the same time it

would require radical changes in working environment and traditions because the world of 2004 is

very different of the world of 1854. The fact that the old organizations like Tatas and Indian Army

have been able to draw upon good management practices from the past while developing new

initiatives, give hopes to the Department of Posts to try for a fresh organizational approach.

8. A question which is invariably asked is about what will be the shape and size of India

Posts in the year 2025. Notwithstanding some bold predictions, it will be very difficult to predict

future of any Department dealing with communication as similar predictions have not bourn fruit

in the past. Since the pace of technology and availability of cheap technology like mobile phones,

email and money transfer facilities is so fast, it is difficult to make, any such prediction. However,

as the country entered into development of rural economy which has pumped in huge money with

richer and middle class farmers, there is a likelihood of increased expenditure on fast moving

consumer goods which may indirectly make an impact on the prosperity of the post offices. The

extent to which such prosperity will be affected by such increased expenditure is difficult to

predict. Further, the recent experiences have show that there is an enormous scope for Rural PLI,

Savings Bank and Savings Certificates in the enforceable future although the extent of share of

rural post will be influenced by the level of competition. We have seen one Cooperative Bank fail


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after another but the public confidence in India Post remains intact and if we are able to improve

the quality of services offered by India Post in rural areas then the gap between revenue

expenditure and cost involved will decline substantially.

9. In conclusion, it can be said that the ability of India Post to compete in the rural segment

will depend on the extent with which such new initiatives are pursued with more intensive use of

infrastructure. The decline of the conventional letter mail is a known phenomena. This trend is

not confined to India Post alone, but other similarly placed countries also face similar challenges.

However, innovative restructuring, right sizing along with new initiatives may reduce the extent of

financial loss and that is the bottom line all of us have to aim at.


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Future of India Post – Rural Dimension