E-com bet yet to pay off for India Post

With its revenue deficit only set to widen, India’s 164-year-old postal service is counting on its recently launched e-commerce delivery biz to revive fortunes

Published: 18th April 2019 08:24 AM  |   Last Updated: 18th April 2019 08:26 AM   |  A+A-

India Post

India Post image used for representation. (Photo | PTI)

Express News Service

The rapid rise of communication technology and the near-universal availability of cell phones and internet services seem to have left very little work for postmen to do. Coupled with the rise of private courier services providing efficient services at reasonable prices, this has taken a substantial chunk out of the business of post offices. The 164-year-old India Post is now grappling with rising pay-and-allowance costs and falling profitability. Over the past three financial years, India Post’s revenue deficit has risen a whopping 150 per cent to Rs 15,000 crore in FY19 from Rs 6,007 crore in FY16, thanks to high pay-and-allowance costs, which stands at over 90 per cent of its annual revenue. 

During FY19, the organisation shelled out Rs 16,620 crore as pay and allowances for employees against a revenue of just Rs18,000 crore. Reports suggest that if the cost of pension payments at another Rs 9,782 crore is added, overall employee costs alone stood at Rs 26,400 crore — more than half of its total receipts. 

While salaries have steadily moved northwards, revenue from traditional postal services have gone the other way. For instance, while India Post now runs a payments bank and an e-commerce portal aside from its popular savings scheme, the largest postal network in the world pegs its revenue at Rs 19,500 crore for FY20. On the other hand, its projected expenditure on salary and allowances for its massive 4.33 lakh workforce is Rs 17,500 crore, while pension outgo is expected to be around Rs 10,271 crore. For the organisation, this only means its revenue-deficit gap is only set to widen, unless it has a secret ace up its sleeve. 

The reason why India Post’s fight for relevance has come a cropper is two-fold. Firstly, sources say it has been unable to strike a balance between product cost and pricing. It spends an average of Rs 12 on each postcard but realises only 50 paise. The average cost of its parcel service Rs 89.23, but recovery is less than half of that. Realisations are also very low for its book-post and registration services, he added. 

It then began diversifying, selling financial products like mutual funds, sovereign gold bonds and insurance, offering passport services and selling railway tickets. But, these businesses generated just Rs 844 crore in FY18. For India Post, a large portion of its revenue still comes from its highly popular National Savings schemes and Savings Certificates, show annual reports. The state-run entity has 1.5 lakh offices across the country and offers savings accounts with deposits of up to one lakh along with transfers and bill payments. 

Many even see its new payments bank as devoid of a business model. But, a senior official from the Department of Posts said that the government’s approved capital infusion of Rs 1,435 crore last year would help the bank break even in the next two years. However, this is unlikely to pull the parent firm out of the hole it finds itself in given the widening deficit. 

India Post, however, is looking to tap into the e-commerce boom to revive its performance. It has decentralised its parcel and logistics services and now hopes the e-commerce bet will pay off, considering the 20-25 per cent year-on-year rise in the segment’s business. 

It also has staggering rural penetration with 1.3 lakh access points, which is nearly 2.5 times the number of bank branches in rural India today, India Post claims. Given its reach, this sprawling network could become a favoured Cash-On-Delivery (COD) channel for e-commerce brands like Amazon and Flipkart. But, officials say not much business has come its way due to its lack of warehousing facilities. As of January 2018, the Department of Posts had collected and remitted just around Rs 2,700 crore under the CoD model since its introduction in December 2013.

  • While salaries have steadily moved northwards with successive central pay commission awards, revenue from traditional postal services have gone the other way 
  • India Post pegs FY20 revenue at Rs 19,500 crore, but projected expenditure on salary and allowances is Rs 17,500 crore, with another Rs 10,271 crore to be disbursed as pensions
  • Diversifying into selling financial products, offering passport services and railway tickets have not done as well as expected, with sources saying that these new segments netted the organisation just Rs 844 crore in FY18. In fact, a bulk of its revenue still comes from the highly popular National Savings schemes and certificates
  • For the organisation, this only means that its revenue-deficit gap is only set to continue widening, unless it has a secret ace up its sleeve
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