Monday, December 01, 2014

India Post - The Chance to Make Itself Indispensible

There has been a lot off buzz when India Post collected Rs 280 crores through Cash On Delivery (COD) for e-commerce firms in the last year. While this surely something to crow about, this is just a small drop in the ocean. However this perhaps assumes much more significance on the way forward for the organization.

To give an introduction - India Post has about 1.55+ lakh post offices of which 90% are in the rural areas, making it the world's largest postal network. On an average, a post office serves 21.21 sq. km area and about 7,175 people. It also has cash handling services like core banking solutions, money transfer and a robust account system. Apart from this it has insurance and other services.

India is at the cusp of the ecommerce wave.  The e-commerce business in India was about $ 6 billion (approx. Rs. 37,344 crores) in 2012 and is expected to touch $76 billion (roughly Rs. 4,73,024 crores) by 2021 of which distribution, delivery and logistics constitutes around 12 percent. Presently ecommerce only contributes approx. 2% of the total retail market. With all the hype around it shows the enormous potential which exists in India.

There are 3 major problems that can restrict the growth:
  1. Internet penetration  
  2. Logistics support in the rural areas
  3. Financial interactions
  • Internet penetration would increase with the increasing sales of smartphones, which the telecom providers are gearing upto with increased emphasis on data. Apart from this, the government plans to cable most rural areas to increase connectivity.  There still exists the provision to provide desktops/ laptops in designated locations within rural areas that are secure but also accessible to the public.
  • Logistics support - While the private sector logistics players are growing rapidly, the ecommerce biggies like Flipkart, Amazon, Jabong etc. have developed their own delivery systems but there remains a huge task of reaching to the length and breadth of the country. There is both a financial viability and physical implementation that prohibits a service provider from opening a branch.
  • Financial interactions - Leave alone credit card penetration, the number of people who have a savings account in nationalized banks are limited both in urban and rural areas.  Even though 8 crore new accounts have been opened there still remains a huge task to get every household on board across the country. Moreover Indians seem prefer cash as a payment option and that too after seeing the product (hence COD).
It is very co-incidental and also fortuitous that the India Post system can solve the 3 problems mentioned. They have the physical infrastructure to keep PCs at the post office, provide the last mile support for delivery of products and also be the point of cash collection (COD).

This cannot happen by a mere wish. It requires investments in terms of infrastructure, training of the personnel and also up-gradation of the existing systems. And perhaps most importantly changing a mindset to a market savvy one.

It is not to say that some of the initiatives have not been encouraging.  Speed Post, introduced
approximately 20 years back has been showing good numbers - around 2 billion units per annum but the private operators have long overtaken this. And so is Business Post that offers value-addition to all business mail in the shape of collection, insertion, addressing, sealing etc. However other postal products have really not shown results.

On the financial services front India Post has already become the organization used for payment of wages under the Mahatma Gandhi Rural Employment Guarantee Scheme. It is also associated with Aadhar -  Unique Identification Authority of India (UIDAI) & Pension Fund Regulatory and Development Authority (PFRDA) to participate in the New Pension Scheme. Postal Life Insurance is also providing impetus. Post Office Savings Bank (POSB) is the oldest and the largest banking institution of the country, which has taken small savings operations to even the remote villages. With 250 million accounts, POSB has the largest amount of deposits. And this is perhaps one of the biggest success stories.

However there is a lot, which needs to be done. Corporatization along with private sector investments
could be a way of further enhancing India Post. Many countries have already started or completed the process of privatization of their respective postal systems.  They need to benchmark against existing players in logistics and financial services so as to upgrade their systems and processes. But fundamentally it is about the mentality. There has to be dynamism and professionalism so prevalent in private sector organizations.

The department has to reinvent itself with greater autonomy and professionalism. Since it is a government run organization, political necessities outweigh practicality.

From a reinvention perspective, here are a few suggestions:

  1. Logistics 
  • Be the last mile for the in-house Speed Post while also providing the same services to private players
  • Provide cash on delivery for all logistics providers
  • Warehousing
     2.  Financial Services
  • Transform itself into a mini bank
  • Leverage itself to market other financial products like insurance policies, mutual fund etc.
  • Brown labelled ATMs
     3.  Miscellaneous
  • Provide internet access to villagers both for B2C and B2B activities e.g. providing rates of pulses in the wholesale market
  • Ticketing - cut down the time to book transportation tickets.
For achieving this there has to be a serious mandate to transform the organization that is not bound by political exigencies but by practicality and commercial considerations. It is not an impossible task as other countries have shown.

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