Seminar on Transformation of India Post

Public Disclosure Authorized for Vision 2020

Delivering Efficient, Postal, Financial tmd Information Technology Services lvithin the Context of a Commercially TcTiab/e Postal Institution

June 15-16, 2005

Public Disclosure Authorized New Delhi

Organized by the Department of Posts, "Ministry of Communication and Information Technology, in collaboration with the World Bank with the support of the Swiss Agency for Development and Cooperation Public Disclosure Authorized

Volume 2

Presentations

October 2005 Public Disclosure Authorized © 2006 The International Bank for Reconstruction and Development/The World Bank 1818 H Street N\X! Washington DC 20433 Telephone: 202-473-1000 Internet: uTv,rw:worldbank.org E-mail: [email protected]

All rights reserved.

pUIJtlJm:a, 2006

Published for the World Bank l\Iacmillan India Ltd., this book is not for sale through its commercial channels.

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The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank lor Reconstruction and Development/The World Bank or the governments they represent.

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Acronyms and Abbreviations v

INTRODUCTION 1

I. Brief Overview of India Post - Status, Services, Strengths and Weaknesses 2

1. Welcome Address 2 2. Output from the last seminar and objectives of this semmar 3 3. Overview of India Post and perspective on challenges ahead 5 4. Opening Address 8 5. Key Note Address: Vision 2020 and India Post 10

II. India Post: Restructuring and Modernisation (International Experiences) 14

6. The Changing World of Postal Services 14

7 Modernization of a postal network, example of Deutsche Post \Vorld Net 19 8. Role of technology for postal systems and challenges for India 25 9. Open Discussions and Questions 30 10. Modernising Postal Communications Services and Logistics: The Operations of Deutsche Post World Net 31 11. Experiences from La. Poste 38 12. Summing up 45 13. Transformation of Indian Bank into profit making customer focused business 47 14. Discussion 52 15. Breakout Session: Postal Sector Restructuring and New Business Opportunities,

Scope of dSO, '\farket Liberalisation, New Business Opportunities and J"'","')U,-" 53

III. India Post: Delivery of Services and Key Enablers 55 16. Postal Financial Services for Anywhere Anytime Banking 55 17. Financial Services for Postal Operators-international experiences and relevance to India 69 18. Financial and Retail Network Solutions 70 19. Summing up 76 20. Opportunities for India Post providing E- Government Services to Rural Populations 80 21. Using the Indian Post Office Network for Micro Finance Services 84 22. Break out Session: Financial Services and Technology, Application to India Platform Requirements, Extent and Cost Benefits of Counter Automation 87

IV. India Post: Strategic Action Plan 90 23. Applying lessons from international and domestic experiences 90

V. Conclusion 91

24. Closing Address 91

VI. List of Participants 93

Acronyms and Abbrevia'tions

ADSL Asymmetric Digital Subscriber Line ALM Asset Liability Management ARCEP The French Telecommunication and Posts Regulator (Autorite de Regulation des Communications Electroniques et des Postes) ATMs Automated Teller Machines BPO Business Process Outsourcing BSNL Bharat Sanchar Nigam Limited CBI Central Bureau of Investigation CD Credit Deposit CEE Central and Eastern Europe CEO Chief Executive Officer CII Confederation of Indian Industry CMD Chairman cum Managing Director CDMA Code Division Multiple Access DPAG Deutsche Post AG DPWN Deutsche Post World Net ED Executive Director EMS Express Mail Service EU European Union GE General Electric GM General Manager GSM Global System for Mobile Communication HDFC Housing Development Finance Corporation HR Human Resource HRM Human Resource Management ICRA Investment Information & Credit Rating Agency IDA International Development Agency IDBI Infrastructure Development Bank of India IP India Post ISP Internet Service Provider IT Information Technology MBA Master of Business Administration MFls Micro Finance Institutions MIS Management Information System MoU Memorandum of Understanding NABARD National Bank for Agriculture and Rural Development NGO N on Governmental Organization NPAs N on Performing Assets NRI Non-resident Indian PCO Public Calling Office PCs Personal Computers PO Post Office PURA Providing Urban Amenities in Rural Areas vi Acronyms and Abbreviations

RBI Reserve Bank of India RNBC Residuary Non-Bank Finance Company RRBs Regional Rural Banks SHG Self Help Group SME Small and Medium Enterprise SMS Short Service STD State Trunk Dialing TV Television UPU Universal Postal Union usa Universal Service Obligation USPS United States Postal Service UTI Unit Trust of India VRS Voluntary retirement scheme V-SAT Very Small Aperture Terminal XML Extensible Markup Language INTRODUCTION

India Post, with its extensive network of 155,000 post offices and physical presence in both rural and urban areas, is one of the departments in the country. The Department of Posts provides connectivity in terms of mails, money order remittances, pension distribution and is India's largest savings bank, particularly focused on lower income groups with low access to banks and savings institutions. India Post is also an important life insurance provider in rural markets.

India Post plays the role of operator and regulator. However, lack of management autonomy, lack of customer focus, poor marketing, the burden of the usa leading to subventions from Government, low levels of investment, inefficient operations and growing competition all affect the functioning of India Post as an operator. Its role of regulator results in a lack of independence in regulation of competition, tariffs and quality of service targets.

A particular issue faced by the Government and India Post is the conflict between providing universal service and being a commercial organisation. India Post has launched a number of commercial products to compete with courier providers, one of which, Speed Post, captured 23% market share within a year of introduction. Despite such successes India Post is facing increasing challenges from competition that has led to significant erosion in traditional mail volumes. One of the key reasons for this is a continued focus on provISIon of universal service, which hampers India Post's ability to focus on the needs of key customers.

To deal with these issues, the department strongly feels that it needs a clear action plan charting out a precise strategy, balancing short and long term needs, while focussing on the overall growth and development of the organisation. The action plan will also need to take into account the dual role of India Post as a Universal Service Provider and a commercial organisation.

The World Bank has been engaged in discussions with India Post and has organised seminars together with the Department of Posts in the last few years. The previous seminar organised by the World Bank was held in November 2002 and the aim of this two-day seminar held in June 2005 is to help further the reform process of India Post.

This document contains our summary of the excellent presentations made by various speakers and the deliberations and discussions held. 2 Transformation of India Post for Vision 2020

I BRIEF OVERVIEW OF INDIA POST - STATUS, SERVICES, STRENGTHS AND WEAKNESSES

1. WELCOME AnDRESS

Michael Carter, Counto' Director, World Bank

Michael Carter, Country Director, World Bank welcomed ali members of the Department of Posts and IJarious other participants from the government, the private sector, Micro Finance InstitutionJ~ etc. His speech is pm'en/ed below.

1 am very delighted to have the opportunity to say just a few words to open the proceedings today in the seminar on "Transformation of India Post for Vision 2020" which has been organized jointly by the World Bank and the Department of Posts with support from the Swiss Agency for Development and Cooperation. We are delighted that the seminar is place and is bringing together participants from very diverse areas including not just the Department of Posts and other arms of the Government of India but also from postal administrations of other countries, private sector firms including banks and financial companies, insurance companies, consultancies, academics, ~GOs, micro finance institutions and other institutions all of which see, quite rightly, the opportunity of working with the postal system. I am also that the seminar is taking place at the time of the 150th anniversary of the India Post which is a wonderful occasion.

I think sometimes, that it is easy for somebody like me as who is a layman to take the postal service for

(rt'",nrf'r1 and I was astonished when I was told that the India postal system has 155,000 branches around the country. It has an enormous network and everyone in India lives within 3-5 miles of a post office. In other words, India Post has quite a remarkable outreach. I think those couple of statistics alone bring out the enormous potential of India Post not just in terms of its own core function but also as a potential vehicle for all sorts of financial services which are quite important and needed for broader economic development in India. The potential to leverage is quite enormous but of course there are challenges in doing so as well. I think it will be fair to say that the potential cannot be reaEzed unless the India Post's core business is healthy and so addressing this issue is central to the idea of outreach through the vehicle of India Post.

it is dear that we are not talking of new lines of business to India Post as a direct player in terms of banking or insurance services. Rather, the challenge is how to use the vehicle of India Post to allow other players to provide such services, and let them take the business risk for providing those services.

Thirdly, the challenge is how that level of outreach is achieved, and that is very much the of today. I hope that the seminar will be helpful by international and domestic experiences and that it will help define a long term vision for India Post. I very much look forward to the discussions. The World Bank is deEghted to' be .::ssociated with this seminar. I think we are very keen to support the process but it is a process that has to be led domestically. Transformation of India Post for Vision 2020 3

2. OUTPUT FROM THE LAST SEMINAR AND OBJECTIVES OF THIS SEMINAR

Simon Bei~ Sector Managerj South Asia Finance and Private Sector, World Bank

Simon Bell, Sector Manager, World Bank introduced the session on a very positive note and stressed on the fact that the seminar should result in a very concrete Action Plan. The views expressed by him in the seminar are presented below.

The potential developmental impact of India Post is huge. Its outreach is Its capacity to "touch the lives" of over a billion people is unsurpassed. India Post needs to transform and through the seminar move towards an operational agenda.

The time for TALKING is past - the time for DOING is NOW!

2.1 Introduction In November 2002 a conference on India Post provided a VISION. A vision of what India Post could become. That vision was an exciting one with India Post, in public-private arrangements, providing a wide range of important goods and services to the Indian public particularly to rural India - in a win-win scenario for all. However, realizing that vision, was recognized as the difficult part. How was it possible to "operationalize that vision"? As several commentators said back in 2002 "strategizing is easy but implementing is hard". The main message that I took away from the 2002 proceedings was that the three most important things for India Post are, "Implementation, implementation and implementation".

India Post had made significant progress prior to 2002 and it is noted that progress continues to be made. At that conference we were informed of business arrangements with MasterCard, Western Union and IDBI, for electronic money transfers and the sale of mutual fund instruments among other things. But it was also recognized that India Post needed to change its business modeL It was determined that the existing system of the Post Office working as a department of the Ministry of Communication would not work in achieving the exciting partnerships that had been discussed.

There was a need to consider different business models of corporatization, privatization, restructuring and 'l'-u,,-,-uU.I'-' • 4he one thing that was clear was that the status quo was no longer acceptable.

Many new prospective deals in public-private partnerships with India Post were discussed as new business possibilities over the course of that conference. They included the following:

(i) Provident Fund for distribution of provident fund benefits (Ii) PRIME Praxis Consulting for Data :Mining possibilities (iii) Smart Card pilots with the Ministry of IT (iv) E-Government Supporting rural connectivity in Andhra Pradesh for e-government Ogilvy Outreach for outreach to rural markets (vi) BASIX, Hyderabad for micro finance applications.

During that conference we were provided with excellent examples of reform by New Zealand Post, Deutsche Post, Royal Mail, and Dutch Post ranging from corporatization to privatization. All of these experiences provided alterative business models for India Post's consideration,

2.2 Main Themes from 2002 Conference

Another point which came out of the 2002 conference was that most post offices have at least two very distinct types of business activities.

(1) Core postal activities 4 Transformation of India Post for Vision 2020

(ii) Non-core activities - generally built around financial serVlCes (post office network could also provide e-government, e-business, micro finance, data mining, etc - built upon ICT capabilities).

The Post Office Savings Bank is a large holder of savings deposits in the country and had over US$60 billion in deposits; and financial services contribute around 45% of the revenue stream of India Post. Indeed the largest financial institution in the world, with US$3.6 trillion in assets, is Japan Post.

While that conference indicated that the non-core activities tend to assume increasingly greater prominence over time, the main message was that all activities must be developed in tandem.

Several main themes emerged from the 2002 conference:

(i) India Post is a great vehicle for public-private partnerships. (ii) India Post can help deliver development that last mile. (iii) Do not devalue the Brand Trust of India Post by selling products poorly. (iv) Do what you do well. Do not become a second rate pension company. Do not become a third rate IT company. (v) India Post can become the ultimate touch point for the Indian Public. (vi) The Owner, Operator, Regulator functions of India Post must be unbundled.

Another important theme that came through during the conference was that the rural economy in India is a very important market for goods, services and financial products. This is a market which does not want subsidies but it does want immediate access. India Post could provide the appropriate interface for this potentially huge profitable market.

However, something more must be done if this vision is to become more than a mere dream. While in 2002 a four point plan summarized below had emerged from those proceedings, the need is to move towards implementation.

(i) Immediately commence a Business Plan which, among other things, provides guidance on alternative business/restructuring plans for India Post. (ii) Commence the process of separating the Owner, Operator and Regulator functions of India Post. (iii) Actively pursue the various business opportunities which emerged within the context of that conference. (iv) Initiate pilot projects in five different regions - in five Post Office circles - which provide a wide range of new products (postal and non-postal - financial and non-financial) in conjunction with private sector partners.

2.3 Conclusion In the 2002 conference, India Post was described as having "many suitors" - many companies and government agencies which would like to combine with India Post to take advantage of its huge distribution network. However, it was further indicated that these "marriages" required India Post to be efficient, effective and cost competitive. The World Bank has always extended its helping hand in supporting India Post achieve these lofty goals. The offer remains valid today.

In conclusion, two quotes from Sam Pitroda, a principal architect of the telecommunications revolution in India in the 1990s are pertinent.

'The policieJ of development agencieJ too often limit 'appropriate technology' to the two dimemional, two penny Jolutiom that bring the poor to the doonJJa) of the modern world but not actuallj acrOJJ the threJhold".

"In Jhort, high technology can put unequal human beingJ on an equalfooting, and that makeJ it the mOJtpotent democratizing tool ever deviJed". Transformation of India Post for Vision 2020 5

Together, in the postal system of the 2000s, India Post can achieve a similar revolution to what telecom reform provided India in the 19905, to the overall benefit of this nation. The threshold can be crossed by partnering with right agencies and suitable thinkers.

3. OVERVIEW OF INDIA POST AND PERSPECTIVE ON CHALLENGES AHEAD

U. Srinivasa Raghavan, Member Operations, Depart111ent of Posts

The Member Operations introduced the above topic, mentioning that transformation was essential to the Deparlment. He stated that the nature of most of the postal officials and officers is such that th~y are in a mode to learn, think and implement in an efficient manner and hence, with concerled ef/orlS, the challenges can be addressed.

There are various factors that have put the Department of Posts in a path to prepare itself for the aim of transformation. The Department of Posts is in a position as mentioned by Spencer Johnson

"Old beliefs don't lead]ou to new cheese" and

'There should be constant supply of cheese"

In short, India Post should be reinvented. It is safer to search in a maze than remain in a cheese-less situation. The Department of Posts is not in the sick hed hut it has certain problems and challenges to face. It is not a turnaround situation but it has to learn to live with certain realities, anticipate developments and move forward. The Department will have to stress on both strengths and weaknesses. Also Universal Service Obligation (USO) needs to be defined.

The discussion revolved around the following topics which are discussed in detaiL

(i) Existing situation (ii) Challenges (iii) Turn around strategy for growth and sustainability.

3.1 Existing Situation The positive aspects of India Post include:

(1) Vast network of 155,000 post offices - ability to meet full USO. (li) Rural coverage and ability to serve all sections of people. (iii) Variety of products to meet all postal needs for all sections of people rural/urban, individual/ business. (iv) Nation's number one savings bank, thereby also serving development needs. (v) Second largest Life Insurance provider - meeting the social security needs of urbanirural people. (vi) The largest retail network to carry multiple products and services alliances. (vii) The largest pension distributor. (viii) Capacity to successfully work in tandem with private sector, for example the Western Union alliance. (ix) Ability to offer a host of premium products capacity to meet competition. (x) Dedicated· trusted and versatile workforce of 5.5 lakh employees working in the most difficult terrains such as Kashmir and the North Eastern regions.

India Post has a large number of alliances including with UTI, IDBI-Principal and Western Union. It is the 6 Transformation of India Post for Vision 2020 fastest growing partner of \'Vestern Union. When players like DHL and Blue Dart were targeting the express business sector, India Post launched Speed Post. Within one year Speed Post had captured 23% market share.

The U\.-lea,L" .... aspects of India Post include:

(0 The recurring deficit and the subsidy - despite the consistent growth in revenue. (ii) Limited capital expenditure (only 1% of total expenditure). (Ui) Preponderance of staff costs - salary, wages and pensions. (iv) Lack of adequate compensation for agency functions. (v) Adverse net operating ratio (expenditure coverage ratio) lagging circles. (vi) Urgent need for capacity building. (vii) Unsuitable costing methods. Non-economic pricing, due to historical and social causes. (ix) Slow growth of mail volume and cream skimming by private couriers. (x) Communication gaps within and between the administration, unions and staff.

TIle adverse net operating ratio of 1.3% is one area of concern. However, the overall picture should improve once all operational failings have been resolved.

In order to transform, the department will have to build new capabilities and come up with new products and senrices. This would require capacity building, training and knowledge transfer in the areas of technology, banking, insurance, securities market and logistics.

One also has to appreciate that the department is a organization with both social and commercial characteristics. The commercial area calls for more autonomy and the need for absorption and marginal costing. Non-economic pricing due to socia-economic reasons and political pressures are some of the difficulties that India Post faces. Slow growth of mail volumes and skimming by the private players is anOther challenge.

3.2 Challenges McKinsey had published a paper in which they have made an observation regarding three challenges for the postal administration.

(i) Emergence of electronic alternatives (it) More demanding customers (iii) Deregulation.

Whilst the postal department has moved away from its monopolistic tendencies it has still to come to grips with the emergence of electronic alternatives and growing and changing demand of its customer base. Deregulation has led to increasing numbers of competitors since 1980 and this has made a marked difference in recent years, as competitors provided ever more sophisticated solutions aimed at ever more demanding business customers.

The postal market faces a number of opportunities and threats:

(i) Communication lVlarket Electronic alternatives, organised and ad hoc couriers are both into the market share of India Post. (n) Logistit:r Market - National and international players are entering the logistics and express markets to offer ever more sophisticated solutions aimed at large business customers. Transformation of India Post for Vision 2020 7

(ill) Mass Media lvlarket - Opportunities exist to develop direct mail and target the growing middle class community with targeted marketing. (iv) Retazl and Financial Market - With its extensive network India Post is well placed to partner with banks, insurance companies, and financial services providers as well as providing a greater scope of retail products.

What India Post must do is to develop in all areas to ensure that it can minimise the cost of the universal service and move towards financial viability.

Further to the development of the postal market in India, external factors are also changing the dynamics of the market including:

(i) Challenge of Globalisation - Companies such as Deutsche Post and TPG (Dutch Post Office) have already developed into global companies with the acquisition of DHL and TNT respectively. Such global companies are a direct threat to India Post in the domestic and international express markets and India Post must consider how to best deal with such a threat. (11) Challenge of Corporatisation - Is the current structure of India Post a benefit or a hindrance to its future development and viability? The Government must give serious consideration to the most appropriate structure for India Post to face its commercial and environmental challenges. (iii) Challenge of Liberalization - The worldwide trend is to liberalise postal markets to provide customers with greater choice. De facto liberalisation is happening in India with a number of competitors emerging for India Post. The Government must consider the impact of de facto liberalisation and also how to best regulate the postal sector.

3.3 Turnaround Strategy for India Post In turning around India Post into a viable customer focused business, the following will need to be resolved:

(i) Measures for financial self-sufficiency (ii) Leverage financial services/alliances (iii) Network rationalisation (iv) Technology strategy (v) Rationalizing the postal organisational structure (vi) Products and services - review (vii) Accounting and internal audit mechanism - review and rationalisation (v-iii) Accounting/Pricing/Costing strategy (ix) Quality strategy (x) Accountability creation (xi) HR strategy that focuses on capacity building.

Financial self-sufficiency is dependent on defining a suitable mechanism for financing the universal service obligation. Whether this is through a USO fund or explicit subsidy, defining the cost of the USO is a prerequisite, which would require the implementation of a cost accounting system. Such a system would also enable India Post to be more accountable for specific activities.

Despite being the largest savings bank in the country, India Post is not able to leverage the savings for its own development. Instead those savings go to the Central Government from where it is transferred to State Governments by way of loans to their capital budgets. Why can India Post not manage those deposits for the development of the department itself? 8 Transformation of India Post for Vision 2020

India Post should also its network to become an active life insurance player in rural markets, which are largely inaccessible to private players due to lack of network and high costs per customer.

Network rationalization through franchising and introduction of technology are important tools in reaching financial viability. By the Tenth Plan, significant computerization will be completed and by the Eleventh Plan all departmental post office villages are targeted to be computerised. This will enable each post office to become a knowledge centre through technology networking.

u. S. Raghavan concluded by looking forward to the technical assistance of the World Bank and to the development of a clear action plan based on the two-day seminar.

4. OPENING ADDRESS

R Ganesan, Secretary Posts, Government if India

I have been asked to give the speech but after hearing Raghavan, I must say that after the storm we have the calm. It was a stormy presentation indicating what the current status of India Post is and where it has to go. Let me at the outset also thank the World Bank for facilitating this seminar which is of vital importance to India Post at this juncture.

As I mentioned, Raghavan has given a bird's eye view of the functioning of the department and expectations from the seminar. I also thank the World Bank for projecting the basic objectives of this seminar in clear terms. Before we proceed with the main activities of the seminar, I consider it my responsibility to apprise you of the efforts that are being made internally to face up to the challenges in keeping with the scene that the future is made now. However, these measures are through introspection within the organization and as such may have utility only in a limited way.

Any market driven organization, according to Philip Kotler, should always be looking out of the window and not be looking in the mirror to be really successful. This seminar is essentially an effort in this direction, namely to look into our future needs from the vision of our stakeholders in the country and also to review the feedback on international experiences where Posts have been successful in providing quality service while also maintaining profitability. It is for this reason I mentioned in the beginning that the seminar is quite timely and appropriate for our concerns.

Honourable Minister for Communications and IT, has been giving directions to the department for its future on several counts. Some of these being improved quality of mail to bring reliability to its operations. As mentioned by Simon Bell, we seem to be doing many activities but the core activity of mail cannot be given up by the department or cannot be given a go-by or given a second treatment. The very root of the department lays on mail.

We should manage usa in a cost effective manner. We seem to be very often, pointing to usa as the reason that we cannot make profit. I agree that there are limitations but there are also opportunities for us to switch over to cost effective alternatives so that we can really manage our usa economically and reduce deficit in our premium products and services segment by following market savvy practices. This is another area where we find to our dismay that even in premium services we are not able to make revenue in many cases. This is not acceptable and in premium services we should be able to make revenue.

U sing technology for customer benefit and e-governance: there is no point in going on pumping in investments for technology unless this is giving real advantage to the public. These are the issues that the minister has been asking me and I have to give him answers. In short, unfortunately I am really missing him today. He was very keen on being present here. Had he been here, you would have seen the predicament in which I am. In short, he advises the department to think out of the box, evolve their internal strategy that will make the post acceptable to all sections of the community, the common man, as well as the corporate sector fetching us not only goodwill but also revenues. In keeping up with the mandate Transformation of India Post for Vision 2020 9

given to the Department by Honourable Minister of Communications and IT, efforts are being made to provide a new face to the post. Market structure has been put in place from the Directorate to attain the vision at the state and district level in a formal manner. Two committees have been appointed, one for empowering heads of circles with greater financial and administrative powers and another for restructuring the department in order to design an administrative structure for the post in line with the demands of the public and conscious of the mandate in line with the vision statement of India Post to move away from the bureaucratic mould rooted in red tape. Unless we are able to move away from the bureaucratic approach and are able to inculcate the right business culture, our efforts are not going to bear us fruit. The committees are finalizing the work and it is expected that the empowerment of the circles will be firmed up in July 2005.

We have done restructuring in marketing, technology and are starting a new experiment in Mumbai for providing accountability and mail management. The committee on restructuring is expected to finalize its report shortly so that we will be able to provide a new design in a couple of months. We have sought suggestions from the public and I am happy to inform you that the suggestions came pouring in. \Ve were not able to process it and come up with decisions. This must be processed by the end of this month and some decision should be taken on this.

We have also awarded consultancy to school of planning and architecture for new look post offices for creating the right brand image for India Post across the country.

The efforts made above for the reforms of India Post are the beginning of a move in the right direction.

Knowing the inadequacy in the existing structure of the post as a government department, I approached the Cabinet Secretary and sought his intervention for a new direction in respect of becoming commercial, in respect of the premium segment while keeping our commitment to usa, as a part of our social obligation. I am happy to inform you that the Cabinet Secretary has constituted a committee with a mandate to deliberate on a viable model.

The organization has been moving up in its performance. Premium products add about Rs 200 crore to the revenue. The revenue from postal services and savings bank also keep on increasing marginally. The net revenue flow has been showing a gradual increase which is a healthy sign. However, simultaneously the cost of operations is also showing an upward trend which is a major cause of concern.

We have awarded a consultancy for a study of India Post for the development of a blueprint in terms of policy, structure, practices, internal operations and as well as to manage the market situation by making the best product portfolio and market mix. The consultant is expected to give us the report in three months. It is only in this context the seminar on India Post Transformation for Vision 2020 becomes relevant for laying the roadmap.

We may wonder whether the various efforts by way of the seminar sponsored by the World Bank and the institutions involved would come up with different reports leaving us perplexed. It has to be clarified that these are different measures taken for transforming the post for facing the challenges and there is no conflict in the mandate. The solutions emanating out of these three efforts would shape the new way in terms of formulating the policy and I am confident that the coming three months would be a churning period for the organization.

The process of change has been initiated and with this momentum, the transformation will become visible before the closure of the tenth plan period. In this context, I wish to place before you the following from the latest book "Winning" by Jack Welch, the most successful CEO of GE. I am really quoting this because I really felt involved in that. "Don't be arrogant, don't assume you know it all, always assume you can learn from someone else, from a colleague for example or from a competitor, especially from the competitor." It is precisely what I have been advising. Collect competitor practices, what they are doing, what they are not doing and what we can do. At the heart of this culture is the ability to learn and translate that learning into action for a competitive business advantage. 10 Transformation of India Post for Vision 2020

Very often, I feel when we are having these seminars all the people who are present know what is required for the post. But translating the thought into action, in order to cut the competitor to size, is the issue.

I am really very confident that the seminar will produce an excellent result and I have a suggestion for the World Bank that at the end of the day we should sit together and prepare a blueprint for implementing this. I am very confident that this seminar and the efforts made by Cabinet Secretary and the consultant's study will pave the way for the organization. None of us would be apologetic that the organization is at crossroads.

I fully agree with Raghavan that the organization is fully vibrant. I am sure that every effort is moving in the right direction. With the right direction and approach we will be able to achieve the right result. I once again thank the World Bank in supporting us in our endeavour.

5. KEy NOTE AnDRESS: VISION 2020 AND INDIA POST

Dqyanidhi Maran - Ministefj Ministry of Communication and Information Technology (delivered fry R Ganesan) Secretary Posts) Government of India)

Ladies and Gentlemen,

I am happy to be in your midst on the occasion of the World Bank Seminar on 'TranifOrmation oj India Postfor Virion 2020"which assumes significance in the Sesquicentennial Year of India Post. Where has India Post come from; and where has it to go - are the two issues one has to clearly address at this juncture, when the department has to live up to the challenges of the 21st century. India Post, no doubt, has a tradition of 150 years of expertise and experience in the service of written communications, savings bank and insurance. It has served the purpose of maintenance of communications as well as mobilization of resources through savings bank towards the developmental goal of the country in the post-independent era. However, you must not rejoice on your past successes, as yesterday's solution may not be relevant today, though no doubt India Post must definitely also learn from past experiences.

In order to make itself continue to be relevant in 2020, it is necessary to start thinking today, to build up a momentum for growth so that India Post can catch up with lost time vis-a-vis its counterparts in other parts of the world. India has come a long way since 1947 in economic and technological growth and is a leading player in BPO and softWare development. Technology has evolved from the manual mode of communications to the high end - high-speed electronic mode of communication involving Broadband, GSM, and CDMA technologies. Aristotle had aptly stated that time does not exist except for change. Post also has to become relevant technologically and become competent to handle technological developments. I am happy to note that the Department has been able to bring in computerization and V-SAT utilization to the traditional bastion of the post office and is also proposing to move towards networking of post offices. Starting with the nineties, the Department of Posts moved out of its traditional mould and developed services like business mail and Speed Post for the higher-end customer. At the same time, its reach through 155,000 post offices has not been optimized by high level of technological connectivity, is also to be acknowledged. India Post should reinforce its historical edge through induction of appropriate technology further to become relevant in today's world. The computerization of all departmental post offices and connectivity will give India Post the required extra advantage, which no other organization has. The provision of automated sorting in all metros will provide speed and quality in sorting and ensure the capture of the business mail market. The introduction of At!Jtime-At!Jwhere Banking by the post will launch the plastic card technology to the common man who finds a comfort level in the Post Office Savings Bank.

While drawing up the plan for 2020, the department has to understand the multiple opportunities and complex threats that the future holds. Scanning the horizon and understanding the possible technologies that may be appropriate to meet these opportunities will be the first step for the Post. You should acquire Transformation of India Post for Vision 2020 11

the skills, expertise and the technology to meet the challenges of the future. It is not enough to make a choice but it is necessary to implement the choice and move ahead before the initial advantage is lost. This calls for a high level of competence, resolution, and commitment to the cause. Here, I have got my own concerns having interacted with Department of Posts quite closely in the last one year. 1 feel, while the Department is taking steps, it should also take quick decisions to implement those steps. The implementation is sometimes held back by deliberations, well rooted in rules, but not intended to give it the early bird advantage.

Brian Tracy, the well known management expert says:

'The k~y to success is for]ou to set one great dJallenging goal and then pqy aJ!Y price, 01Jerrome any obstacle and persist through aIry dijfim~f)' until]014 jinally achieve it."

While the Department of Posts should be concentrating on its core business of mails related premium products, it should also absorb the growing realities of the market place. It has to recognize that it has to become competent in the market and not take refuge under legislative protection. The post office should arrest migration to other communication channels by exhibiting and rendering superior service, thereby finding a place in the market. The competition posed by couriers, emergence of the express market and the growth of logistics business should make the department realize that it cannot be a static organization but has to move forward with the developments in the market place. Also communicate daily with your customers. If they are talking to you, they cannot talk to your competitor.

I would like to give you the prescription of Jack Welch, an eminent writer on business managemeBt, for success,

'/let in a boundary less fashion and alllJqys search for and apply the best ideas r~gardless of]our source and see change for the J!,rollJ/h opportunity it brings".

These are the basic requirements to enhance your market share in the face of fierce competition.

Training should also send the message of proactively contributing to business volumes at all levels. Build a market-oriented approach. Re-orient your training process so that personnel can be elevated to a proven way of doing a'1d promoting business. Training should propagate role of staff in delivery of products and services y. ",h deference and a smile.

To '-juote Rabindra Nath Tagore,

"J .dept and dreamed that lije uJas a JOY I lVoke and sallJ that Iiji; llJas JerI)ia I acted and behold, JerIJire lJJaJ}OY"

The Post should combine physical reach and e-technology to offer a range of new products and services separately designed for the urban and rural sectors. The brand image of India Post should be leveraged and used to advantage for promoting business and revenue generation. The network should be consolidated for efficiency; upscale competencies and skills, to strengthen the core services and simultaneously discover opportunities.

If reliable basic services are offered, customers can be attracted to new, value added services. There is a need to redesign the product portfolio to suit consumer needs. There can be no single path to postal reform; it is necessary for the department to evaluate alternative routes. There is a need to think differently out of the box and adopt a creative approach to discmTr customer needs and build up a sustainable and durable customer base. Postal reforms ha\T been initiated by countries in the region like Korea, Bhutan and Japan by building up alliances, joint \"enture cooperation, de\Tloping a postal IT system, automation of operation and sorting centres, building a unified data, statistic and reporting systems, establishing serYice '-juality standards and creating a new market by business model ren(JYation. 12 Transformation of India Post for Vision 2020

The key drivers in the current scenario are:

(i) Prmriding value for money. (ii) Transfer tangible benefit to customers and stakeholders. (iii) Streamline management practices to enhance efficiency and productivity of postal business. (iv) Attention to customer care and satisfaction by service quality innovation and best business practices. (v) Optimize the postal network by providing an IT infrastructure to expand and extend services. (vi) Enter the market with other similar providers in a competitive spirit.

India Post has the potential and the resilience to effect a turn around. In the next five years, India Post should work in a technology driven and commercially competitive environment accompanied by a paradigm shift in mindset to be consumer conscious and render quality service. The Department should think globally while working for the local environment. Post should recognize the growth of the cargo market and promises of advantage in logistics and supply-chain management and use its natural talent, historic skill and knowledge in this segment to bring in enormous revenue for the Department. The swift and reliable movement of money is a gap, which the Department should attempt to fill by introducing a premium money transfer business. Communication and commerce today are inter-related in their growth direction. It is necessary that the Department should leverage its vast network of post offices and computerization to take advantage of the development in the commercial sector, in conjunction \vith its special strength of personalized services.

Financial Services contribute nearly 45% of the department's revenue. With the changes in the taxation and the interest rate regime, India Post should take advantage of the resurgence of mutual funds in a buoyant stock market for selling these tlnancial products using its vast network particularly in the rural and semi­ urban areas where few others tread. I am happy to take note that the Department is going to offer through its Finance Marts banking, bill payment, life and general insurance, mutual funds, Government Securities, etc., under one roof with a better ambience and in a computerized and networked environment to attract the new generation of upwardly mobile middle-class which is entering the investment market. I understand, during the course of this year, 160 Finance I'vfarts will be established. In the long run, the Department should expand the Finance Mart network to spin off into the Post Bank.

The Government of India under the Fiscal Responsibility and Budget 'Management Act is totally committed towards wiping out subsidies to all departments and institutions. The Post, world over, is not only a socia-development organisation but is also turning into a commercial organisation. A single point direction in which the Department must move in the next few years would be to ensure that the deficit is not only narrowed down but is finally wiped out in the non-USO segn1ents. It is necessary for the Department to specifically identify both through costing and by way of statistical process, the quantum of commitment towards the Universal Service Obligation (USO) so that the Finance Nlinistry can be specifically approached to take care of the deficit arising out of the USa.

The Post owes its existence solely due to people who visit post offices for its services. What can be done to make processes easier and increase the comfort level for the customer is also an area, which the department should take care of.

In the words of Jack Welch,

"Git'e customer a good fair deal. Great customer relationships take time. Don't try to maximize short-term profits at the expelZJe 0/ building those enduring relationships"

The customer can be an individual, or an organisation or a business entity all with different needs, required to be vended from the same outlet. Process re-engineering is an untreated area, which the department has to address seriously. Transformation of India Post for Vision 2020 13

I appreciate the efforts made by the World Bank in organizing the Seminar and to bring in experts from a wide background from India and abroad. I hope, the World Bank and India Post will continue this engagement in a more sustainable manner. \Vorld Bank's experience in technical assistance for undertaking new initiatives could playa crucial role in making India Post more viable and self-sustaining. The World Bank's unique position of being able to leverage the best practices from around the globe should serve the department in good stead in their endeavours to transform into a provider of quality services.

I wish the Seminar and its deliberations all success and look forward to the timely implementation of the Action Plan proposed to be drawn up at the close of the Seminar. 14 Transformation of India Post for Vision 2020

II INDIA POST: RESTRUCTURING AND MODERNISATION (INTERNATIONAL EXPERIENCES)

6. THE CHANGING WORLD OF POSTAL SERVICES

Current trends in the postal industry, changing customer requirements, liberalization, international relationships, regulation

Graerm Patti Lee, Senior POJ/al Poliq Specialist, Global in/orlliolion and LOJm,1/UI'llC,7tl£l11 Tecbnolqf.Q' Department, rr/orld Bank

Graeme Lee presented a short overview on the status of postal service reform across different countries in the world.

6.1 Introduction

Table 6-1 demonstrates that donor countries with 15% of population have 86% of worldwide mail \'olumes equating to 373 items per capita per annum. They have 24% of the world's post offices each handling an average 6,900 items per day.

Table 6-1: Postal Statistics

Regioll Population Mail volumes Items/capita Post offices Items/PO/day (",~, ) ('~") elc,)

Donors 15 86 373 24 6,900

IBRD 46 11 15 39 540 ---- .. - -_...... - --_...... IDA (excluding India) 22 0.6 2.3 13 88

India 17 2.4 8.5 24 192 !

Borrowing countries 46°1.1 of the population but only 11 % of mail ':olumes eL]uating to 15 items per capita. They have 39(1,) of post offices each handling an average 540 items per For IDA countries the figures represent even less mail volumes and less items per post office per

In terms of population and post offices, India is similar to donor countries \,\1th 17(yo and 24% respectively. However, India has only 2.4°;() of total mail \'olumcs at 8.5 items per capita per annum and 192 items per office per day. This leads to high unit cost of delivery and post oHices that can be ,-iable only if they have diverse product portfolio.

In terms of network density India has one post office for eyery 6,850 people, denser than the USA postal network which handles S(YYo of the \vorld's postal yoiumes. This density and outreach makes India Post an interesting prospect in developmental terms as it has the capacity to reach the heart of even' community of India.

Despite post offices having low level of transactions there is a tendency around the \yorld for them to be owned, rather than as an agent or a franchise, As Table 6-2 shows, Great Britain has the lowest percentage of owned POSt Offices \vith 97'% of them franchise outlets. In fact 73% of post offices are owned bv the postal with 71 members of the UPU O\vning all their outlets.

However, a number of studies show that the majority of rural post offices are not viable. Post offices throughout the \vorld need to look at pri\'ate sector participation in the proviSIOn of rural post offices to extend access and reduce network costs. Transformation of India Post for Vision 2020 15

Table 6-2: Retail Ownership

Country Post offices % owned 0/0 non owned Great Britain 17,200 3 97 .­ -_." -­ Nigeria 4,600 24 76 -_._­ Bra~il 12,300 44 56 --­ _.­ China 76,400 53 47 Egypt 5,500 59 41 Sri Lanka 4,600 87 13 -----­ "\~erbaijan 1,300 94 6 71 Countries 237,000 100 0 ------­- Total 650,000 73 27

6.2 La Poste

Post office yiability is an issue with La Poste in France. About 19% of the post offices in France have less than one hour activity in a day and half less than five hours activity in a day despite having a well developed and diversified product range. Further to this, clients in rural areas face restricted opening hours leading to dissatisfied customers.

La Poste is resolving this issue by prm-iding post offices at bakeries, news agents, supermarkets and at local gm'ernmcnt administration centres, leading to a reduction in administration costs and providing revenue and business to local businesses.

6.3 Royal Mail UK

In the UK, 97% of the post offices are operated through agents but the rural network is still not viable. The government recently commissioned a study to identify the costs and benefits of rural post offices. The study found that only the largest 10% of the post offices generated reyenues greater than their costs and that the lowest 10% actually generated only 6% of the cost. But if other indirect benefits are taken into account then almost all rural post offices are cost effectiye.

The British Goyernment recognises the role of rural post offices and is actually paying Royal Mail subsidy

Table 6-3: Rural Network Viability: Royal Mail

Revenue/Cost Benefit/Cost Smallest 10% 0.06 0.77 10-20 0.18 0.88 20-30 0.29 1.3 ------­ --­ 30AO 0.39 1.22 40-50 0.48 1.45 50-60 0.57 1.60 60-70 0.65 1.77 70-80 0.73 1.87 80-90 0.82 1.93 Largest 10% 1.01 2.03 16 Transformation of India Post for Vision 2020

to ensure they are kept open. This can actually be replicated in India; where rather than covering the losses of India Post the government can provide a subsidy to India Post for covering the rural post offices in the country. The subsidy can then be considered as revenue to India Post which may allow the employees of India Post to operate in a profit making rather than loss making environment.

6.4 United States Postal Services (USPS) One of the key issues in USPS is revenue per drop. As shown in the chart below revenue per drop has dropped from a high of US$450 in 2000 to US$415 in 2004. Static mail volumes and fall in first class mail, steady growth in delivery points of the order of 1.5 million per year \vith increasing staff cost and fuel cost have led to this fall in revenue.

460

440

enY7 420 => c

Q) 400 :::l C Q) > a:Q) 380

360

340 1996 1997 1998 1999 2000 2001 2002 2003 2004

Figure 6-1: Revenue per Drop

Falling revenue per drop is an issue not only for USPS but for all post offices and the implications must be assessed. Increasing rates can rectify the problem but will this impact volumes? Cost based pricing or charging for deliveries are also solutions but probably politically unacceptable. Another solution is to review the needs of the market by the concept of daily delivery.

6.5 Tete-centres: Korea Throughout the world post offices are utilising spare retail to provide additional services. In Korea 2,780 of 2,800 post offices act as telecentres providing free access to computers. This concept was initiated by ivfinistry in Korea to encourage dissemination of information to rural areas and started with 2~5 PCs per office (ADSL or satellite). The service is funded by the Post Office and access is free. In addition there are also 116 Post Office Information Education Centres funded by Government to impart computer lessons in the communities.

Such a use of post offices for the public good could be implemented in India. This could be in the area of telecentres or be focused on the specific needs of local communities. But India Post should be wary not to stray too far from their core competencies.

6.6 Banco Postal/Exporta Fadl: Brazil Brazil has developed two products to improve the viability of its network. The models are innovative and replicable in India.

6.6.1 Banco Postal

Five years ago Brazil post established a partnership with a private bank to provide banking services through Transformation of India Post for Vision 2020 17

post offices. Banco Postal now has 3 million accounts from a community of 40 million people that previously did not have access to banks. Of those accounts, 59% have earnings of less than US$100 per month. Brazil Post receives a fee for each transaction and now generates US$2.5 million per month. This has been achieved on an investment of US$80 million and has led to 5,300 post offices being connected with on-line banking.

6.6.2 Exporta Fadl

The second product is a simplified export process to over 200 countries providing an important product for small and medium enterprises. It has shown a 100% growth rate per annum and Brazil Post now has 32% of the "simple" export market. It has also had a direct impact on the Brazilian economy, increasing pvrV\t"rc by as much as 10%, and is valued at US$lO million.

The to the success in Brazil Post is the immense trust that the public has developed in post office services. India Post is also a trusted brand and it is one of the greatest assets that can be utilised in its favour.

6.7 Trinidad and Tobago In Trinidad and Tobago a five year management contract has reaped significant results. Home delivery has increased from 50% in 1998 to 98% in 2003. Mail volumes, revenues and productivity have all increased considerably during the same period. \'Vhilst the introduction of a management contract in India Post may not be a practical solution, the introduction of commercial practices could yield similar results.

6.8 Commercialisation and Corporatization is a Way Forward

Despite having monopolies in place to protect them from competition, post offices are actually facing competition in all their markets (Table 6-4). Traditional mail is under threat from electronic substitution and for every post office service there is an alternative supplier in most cases. For this reason, post offices are to diversify into new areas. This is increasingly in partnership with private sector companies that value the reach of postal networks.

Table 6-4: Competition Exists

Service Products Competitors I M.ail Letters, Registered, Philatelic Internal and informal Distribution, electronic transfer

]::v....rpC< Parcels, Packages Local Couriers, DHL, UPS, FedEx, TNT Financial Savings, Payments, Loans, Money Orders Banks, Moneygram, Western Union Government Licences, Taxation, Pensions, Benefits. Local Governu c Information

I Retail Phones, Phonecards, Stationary, etc. Shops, Kiosks, Newsagents .Electronic Hybrid Mail, Internet, SMS ISP's, Cybercafes

• Rural Access to people Schools, Community centres, Religious centres Warehousing, Packaging, Picking, Distribution Transportation companies, Freight Forwarders i

We will see ftom China Post, Deutsche Post and La Poste (France) that post offices are becoming more commercially focused and are changing their institutional model. Post offices are moving away from public administrations and increasingly moving towards privati sed status, as is the case in Germany. Deutsche Post is no longer just a German post office but a world wide leader in logistics. 18 Transformation of India Post for Vision 2020

Commercialisation can take place without corporate reforms but the reality is that postal departments do not have freedom to make commercial decisions.

Table 6-5: Corporate Reform

Government department Corporation established or public agency under public law company law PUBLIC LAW PRIVATE LAW PUBLIC OWNER PRIVATE OWNER COM1\fERCIALISATION Introduction of commercial objectives and practices

6.9 European Union Reforms

In the Union, Cyprus is the only post that remains a public administration. The majority of countries have already transformed their postal departments into Public Corporations and in three countries Post Offices have become private companies. But eyen in Europe there is a considerable amount of political opposition towards post offices undergoing reforms.

The Union is also liberalising the market in the belief that competition is good for the sector. The reserved area is currently 100 gm and this will fall to 50 gm on 1st of January 2006.

Some countries are liberalising prior to the EU directive. Sweden has been fully liberalised since 1993, the UK will fully liberalise its market in 2007, and local mail is already outside the monopoly in But in spite of liberalisation the EU has strict norms for the provision of the USO as shmvn in Box 1.

One question some people ask is whether specifying 5 day delivery service as part of the directive places too much restriction on universal service providers. But even though people may no longer require daily of mail, it has been provided for so long that it is now written in legislation. On the theme of uniform pricing the EU has not specified this within although some national regulators do uniform pricing.

Table 6-6: Status of EU Post Offices I Stage 0 Stage 1 Stage 2 Stage 3 Pu hi Ie AdmtnIstrat10n Statutory Corporanon Stateowned company Pnvate ~ompany Cyprus Belgium Austria Germany France Czech Rep Holland Greece Denmark Malta Hungary Estonia Lithuania Finland Luxembourg Ireland Poland Italy Sk)\"akia Latvia Slovenia Portugal Spain Sweden UK Transformation of India Post for Vision 2020 19

Table 6-7: European Union Liberalisation limits

Weight Limit Price Limit 1998 - 2002 350 gram 5 x stamp 2003 - 2005 100 gram 3 x stamp ...... --...... ~ 2006 2008 50 gram 2.5 x stamp Full Iiberalisation?

Box 1: Universal Service Obligations: European Union • Scope of universal service All postal items up to 2 Kg Postal parcels up to 10 Kg Incoming parcels up to 20 Kg • Routing time for cross border mail - J+3 85%, J+5 97% • 5 day service (collection and delivery) • Network access, complaints and redress

6.10 Conclusion

A issue quantified by OSPS is the changing profIle of mail, leading to reduced revenues for each delivery point. First class mail volumes are falling while less time critical direct mail volumes are rising. An issue that the Government of India consider is what this means in relation to defining universal service specif1cations.

To increase revenues, public postal operators are increasingly diversifYing the range of services distributed in post offices and this is an area where India Post too needs to continue pursuing its on-going initiatives.

To counter growing competition Post Offices must be given more commercial freedom through increased autonomy from Government control which has been the experience in the European Union. India Post needs to introduce commercial practices if it is to compete in its markets. India Post also needs to consider the implications of market liberalization. Independent regulation may be introduced to protect customer interests and ensure a level-playing field competition.

There is a need for India Post to build on the strengths of its network and staff to develop a viable and sustainable business model. There are many lessons that have already been applied throughout the world that India can learn from. From targeted subsidies to franchising, from diversification of services to provision of social services, the opportunities for India Post are extensive but they must be targeted in a coordinated manner.

7. MODERNIZATION OF A POSTAL NETWORK, EXAMPLE OF DEUTSCHE POST WORLD NET

New business opportunities, liberalisation, strategy and structure, competition

Amin Jaidoun, Director UPU Af/airs, Deutsche Post IVoridNet

Amin Saidoun presented the process through which Deutsche Post achieved the status of a world leader in logistics and postal communication market. He explained the planning, the drivers, the shaping 20 Transformation of India Post for Vision 2020

factors and the strategic solutions adopted for change management of Deutsche Post from 1990. The three phases of change, the criteria for assessment of success and failure and the future development plans which led to the Deutsche Post World Net (DPWN) were also described.

The fIrst question that must be understood before embarking on a process of change is "what is the need to change or restructure"? One of the main reasons in Europe is that the European Commission has defIned clear guidelines for transformation and liberalisation of the postal sector. Therefore, there is a clear road map to bring about change and liberalise the sector. Natural monopolies are no longer viable with wide-spread competition and it was therefore essential to design a new viable postal model. Change is inevitable, and in order to understand the process involved in change, the key drivers of change need to be understood.

7.1 Key Drivers of Change and Deutsche Post World Net Change Strategy One of the key drivers of change is Globalisation. Globalisation means signifIcant growth and potential in international trade. This is true for both large and medium sized companies.

Liberalisation is also a key driver. Modern technology and dismantling commercial barriers have led to a situation where growth cannot be stimulated with local commerce alone. Opening of letter mail markets will trigger need for new markets like growth in express/logistics. As the letter mail market is declining in size and profItability, opening of express markets in emerging economies represents more opportunities for growth.

The third key driver of change is digitisation. Digitisation for the postal sector would mean substitution of traditional mails with e-mails and hence new platforms of e-businesses and electronic services.

This would also mean customers who want wide scope of services, including value-added services or increasingly one stop-shopping service. Hence outsourcing becomes important to maintain effIcient cost structures.

This has four key implications for postal operators and the drivers for DPWN strategy:

(i) Increasing pressure on incumbent to grow efflciently

Liberalization Globalization

- Opening of letter mail markets triggers - Significant growth and potential in need for growth in express!logistics international trade - Domestic (German) letter market will - Need to follow our customers decline in size and profitability - Opening of express markets in emerging economies DPWN Strategy Digitisation Outsourcing - Customers want wide scope of - Substitution effects upon traditional services, including value-added letter mail services - New potential in e-business - One stop-shopping increaSingly - New platform for new services demanded by large customers

Figure 7-1: DPWN Strategy Transformation of India Post for Vision 2020 21

(ii) "Kew way of thinking (iii) Restructuring and reshaping the organisation and the business (iv) "Keed for consolidation of postal business

7.2 Deutsche Bundespost to Deutsche Post World Net Deutsche Post prior to 1989, like other postal net:\vorks, was facing many problems. Huge deficits, lack of political consensus for change, postal labour union was strong and against radical changes, parcel, newspaper and direct mail delivery threatened to put the post out of business. Therefore, strong need for change was required and a first phase of postal reform was decided in 1989.

History - Crisis since 1960: Yearly deficit of hundreds of millions of EUR - Several reform proposals failed because • German politics did not want to relinquish its influence on the Post • the strong postal labour union "Deutsche Postgewerk schatr insisted .." Strong need for change in 50% representation in the supervisory board increasingly perceived by - In 1987, Postal deficits of 800 mio. EUR p.a. had to be compensated by German politics. but also the telecommunications branch of the Ministry of Post and hotly disputed with Unions Telecommunications, which limited its investment capability into new and ""1989:PostaIRef~l~ fast growing technologies (especially telecommunications) decided - Increasing competition in parcel, newspaper and direct mail delivery

Figure 7-2: "Deutsche Bundespost" in 1989

The two success factors for Deutsche Post liberalisation and growth were:

(i) The whole process was stable and was supported by German legislation. (ii) The government did not interfere in the activities of the regulator.

It is, therefore, important that the regulator should allow for competition but not stray into competition itself.

7.3 Liberalisation Schedule In Germany, the liberalisation schedule/agenda for liberalisation is that by the end of 2005 mails below 50 gm will be opened for competition and complete liberalisation will be achieved by 2007. Since 2003, local competition has taken place through special licenses offered to companies that can offer better quality than the incumbent for the same service.

Germany <200g, (direct <100g, (direct • Uberalisation mail: <50g) mail: <50g) <5Og completed (planned)

I Local competition ("E+O") I ...

...... ,.._2002_·.•.·._)"_.;.ea ...... ,,·;...... ,···~_i.··.2_003.....;;··.• ··....•···· •••.....l;_·.2004_/_· ..•·•··· .....I ....,···.._.•... ·...../,..,.... 1...... ,,_. _.. '__ 2007_...... _2t08_".....N ...,,'_2009_...... --.II) I II <350g <100g <50g • Envisaged Europe completion of liberaJisation (based on studies 2006) Figure 7-3: Germany was always ahead of the European liberalization schedule 22 Transformation of India Post for Vision 2020

Therefore the reaction of the Deutsche Post to liberalisation has been:

(i) Introduction of a stable, but flexible regulatory framework. (ii) Re-defining the postal business through: (a) strong customer focus (b) management improvement (c) transparency in system data processes and (d) focus on operational excellence. (iii) Co-operation across corporate divisions to create synergIes and offer required and customised solutions.

7.4 Actual Transformation Process and the Significant Changes

Though this is an example from Deutsche Post experience it can be valid for any postal operator. Deutsche Post adopted a three phase transformation process depicted in Figure 7-4:

Leveraging the potential within the Group

Establishment of new business platforms 2001-2006 1998-2000 Turnaround

1990-1991 Value added services ~ "~ i~ : ,comprehensive ~ -' (~~..•.... 1,56 ..... product range i- Ii:. E 1990~ Globalisation ~ . .. 2001 E -120 .~.-.-.-.-.-.~-~.-~

Figure 7-4: The three phases: On the way of becoming a global logistics company

(i) Turnaround phase

~i) Establishment of new business platforms (iii) Leveraging the potential within the group.

7.4.1 Btffeat{cratic administration to a competitive, market-oriented company The first phase in realising the turnaround strategy is very important in laying down the foundation for

~ ------'Inlegmled appH.. 'ilch 01. ----_._-,..-- New 1Il1ralltructure Chang.El 01 ~>O$tal (>JlJe> SySIL'fTl Easl WB'

Figure 7-5: Restructuring: The transformation process Transformation of India Post for Vision 2020 23

future development. 'The key process here involves reduction in costs, creating efficient processes and increasing quality in the domestic market. To bring about change it is very important to rethink processes and abandon old ones keeping in mind new market demands.

7.4.2 Listablishlllent of neu) business The second phase is expanding the product range and offering new services along the value chain. Deutsche Post had to come up with new and innovative solutions to solve the customers' problems and put the business on a broader basis.

,', • Msil • &pes .~ • FiIt.ac:e ..' : . ; lIH1 .: .: £DBftJes: Ail expres~. frelght ilrwulil'€, fU'II.UICW ser..Jces

Figure 7-6: Establishment of new business platforms for the Group

The two example of value added services used to broaden the business are:

(i) Direct marketing centres: providing more knowledge, information and solutions to communication problems of direct mailers. Customers were told "don't waste time and money on traditional advertisements and IV campaigns but target direct mailing in a more efficient and cost effective way for reaching the customer". (ii) Deutsche Post Print Com: this is a subsidiary of Deutsche Post that provides high volume print production for mass mailers (such as printing telephone bills) positioning Deutsche Post at the source of the mail production.

These examples are not that innovative but provide customers with valuable solutions to their problems. Another example is of pack stations where Deutsche Post offers high-tech lockers for parcels to be delivered and the customer can pick it up at their convenience after receiving the message via SMS. The pack stations have been very successful and are currently on a nation wide ron out in Germany.

Sometimes innovations do not perform as expected. Deutsche Post ventured into e-business and started a shopping portal called Evita. The portal was badly hit by the crash of the internet bubble and Deutsche Post sold it two years after its establishment. The important lesson is to cut losses and scale back unprofitable businesses.

7.4.3 Reshaping the process and leveraging the full potential 0/ the group Phase 3 involved raising the platform, creating synergies and improving all areas. Programme Star of the Deutsche Post plays a key role as a valued project in improving and enhancing integration process. 24 Transformation of India Post for Vision 2020

Cross-selling potential Integrated products and solutions

(!'!~. DAIIlB ..... ~§.. ~

3.3 1.3 0.1 0.4 mn mn mn mn Business DPWN customers Group Use of synergies structuring Further global expansion DPWN

Figure 7-7: Leveraging the group's potential: Focus on U'"'l',''"'', development of integrated products and globalisation

Deutsche Post has the '\'1.S10n to provide full services along the value chain in the markets. The key success in following a country specific approach is to adapt to a part of the strategy rather than implementing the entire strategy. For example, a water glass company in Europe found out that its water glasses which were very popular in Europe became shelf warmers in USA, as customers mistook the water glasses for flower

···.s~ Collb:att Loptics Maragement --Sl

• Transportation of • Warehousing • Parcel shipments • Catalogue shipments • Order management goods ofAsia to using Invoicing • Fulfilment • Distribution -Infopost Germany tooutJets • • Consignment - Postwurf Spezial • Call centres handling for Full truck loads for - Postwurf SpeZial Germany. Ausltia. • deliveries of Plus the Netherlands & wholesalers and - Unaddressed mail SwiUerland retailers • Direct Marketing

Figure 7-8: Future of development Transformation of India Post for Vision 2020 25

vases as they were perceived to be too smalL This reflects an attitudinal difference in the concept of water glasses between Eutope and USA.

Deutsche Post offers one stop shopping in parcel area including parcel logistics, transportation from Asia to Germany, logistics services through warehouses and storage facilities, transportation of goods according to quality and services levels. Due to its subsidiaries in marketing, sales and distribution Deutsche Post is now a specialist in catalogues, shipments and express management.

7.5 Conclusion For reform to be successful, the reform process has to be backed by government legislation, which was the case for Deutsche Post that prevented interference in the actual reform.

The first phase (1990-1997) focused on reduction of costs, creation of efficient processes and increasing quality of service in the domestic market. The second phase (1998-2000) focused on expanding the product range and offering new services along the value chain. The third phase (2001-2006) consisted of consolidating cross selling potential, using all possible synergies and developing integrated products and solutions.

Learning from the German Post experience, the Government and India Post in the short term can aim for reducing costs of operation, defining the scope of usa services, accelerating the reform process by setting up a regulatory authority (separating owner, operator and regulator function) and providing high guality customer driven services with increased revenue and profit potential. India Post then needs to diversify its product base and strive towards inventing products to compete with courier service providers. The German experience suggests that India Post, in the long run, might compete and cooperate with other service providers.

A final message from the Deutsche Post transformation is that the reform took a considerable amount of time and was underpinned by strong and consistent Government support.

8. ROLE OF TECHNOLOGY FOR POSTAL SYSTEMS AND CHALLENGES FOR INDIA 5aJ!jq)! Mirchandam; Regional Vice President, lvlicrosoft Asia

Sar!fqy Afirchandani presented on n'CiYs to properlY manage the business and bring-in more customer orientation through use of tecfmology soltttions.

Customer Interaction, IT and the IT department playa more pivotal role to step up, be more strategic and more aligned to the long term goal of the organisation and be a part of the overall growth of the organisation. Every organisation is measured by its performance in the following areas:

(i) Growth in revenue (li) Growth in profits (iii) Customer satisfaction (iv) Effective administration.

The organisation will not only have to do all this but also manage and continue to provide universal service. IT is a key enabler to improve profits and meet challenges for growth in business.

8.1 Postal Services: Key Challenges Today (i) Improving the postal delit'ery !lstem (collectioll, sorting and delivery): post offices, circles, etc are facing threats to traditional door to door mail delivery, globalisation, liberalisation and modern faster mechanism are making it easier for non-traditional operators to compete. 26 Transformation of India Post for Vision 2020

(ii) New electronic communication channels: from a technology perspective internet is the largest threat that this business faces, but is also an opportunity for individuals, small businesses, and large businesses to communicate and conduct business. Though e-mail has reduced the physical pieces of mail that go across our desk, business in both old and new economy are increasing the volume of packages and direct mail advertising. (iii) Customer satiifaction and retention (especially for premium and financial services): to continue to meet public service, financial and performance goals in a competitive economy, postal services have to become agile and ready to brace new opportunities in the marketplace. They need to make smart decisions and act on them quickly. Agility becomes the key and technology becomes the key enabler. Postal services with a clear view of their resources, open-lines of information exchange, adaptable integrated systems are the ones that can change to their advantage. (iv) Competition from private courier companies and logistics companies, commercial banks and companies in banking services. IT is an enabler to plan for such competition. (v) Expanding into other value added services and IT can be helpful in this.

8.2 Postal Strategy & Technology The four pillars of strategic change and development are - empower, broaden, measure and improve. Technology can empower customers, senior managers, and the employees by automating of the complete delivery chain. Broadening is about having a broader set of services that allows the post offices to use their physical location as a multi-channel service stop. Measuring is a part of any governance today. Today business has to give their employees the best tools to make them more effective.

Technology is used to provide these services and forms a basis for the next generation of strategy. All of this has to be run simultaneously as a world class organisation and cannot be run in pockets of technology applications that have mushroomed with time. This business is not different from other businesses that have grown and evolved as the market dynamics change. 1be intelligent thing to do here is to think through an IT infrastructure that can enable future growth.

Table 8-1: Postal Strategy and Technology

Postal Strategy Pillars IT Objectives

Empower - custoIIlers, eIIlployees and partners Run World Class Managed Solutions & IT with great service, guidance and solutions Broaden ­ Use of POs for Providing Value Easy to Use Interface for Employees Added Services Measure ­ operational costs, productivity, Protect & Secure Digital Assets customer value IIIlprove - Productivity of service delivery Deliver value to Postal Workers from technology and employees

There are four scenarios that explain the use of IT as a key enabler for growth and management.

8.2.1 EmpouJer: Logistics Alanagement

IT in logistics management would mean automating the entire value chain. This will allow the postal department to emerge as a serious player in not only providing logistics but also as a quality service provider. It also gives the predictability, efficiency, and cost management that are vital for any business today. Providing services - Tracking Management, Sorting Centre Management, Transportation Management, etc., separately will be a sin. It has to be built on a hub and integrated with each other. Transformation of India Post for Vision 2020 27

But the different applications have to be snapped to fit as the business and the strategy evolves. However, these applications whether it is IVR or web based can not be developed in isolation. Integrating with other departments or two way flow of data, or XivIL based or any other kind of electronic data exchange has to be through a gateway/hub that allows data in and out, whether it is internal or external with customers.

8.2.2 Empower: Enabli~g the Common Man s Bank of Choice Second scenario can be banking, where being the largest provider of banking in the country, it is important that technology enables this function and makes it more efficient. Automating the banking is one step, but what is more important is the need for a centralized banking with a distributed database. For example:

(D Application replicated to the local post offices but having a customer data base. (it) Offline connectivity for better customer service. (ill) Data integration on a daily basis for reporting and single view to the customer. (iv) Centralized database.

IT not only increases efficiency but also ability to bring in new products.

8.2.3 Broaden; GateJJ/qJ for Added Serl/ices The magnitude of post office services and the assets that have been created, can be used to integrate government based services or private services. This can be done by linking through IT. The linking can be through a gateway which provides a centralised way of pushing growth. It can help in bringing new products at lower costs; it is like building sockets in a house which has wires running through its walls. This actually provides a backbone and ability to add new services to the business. For example:

(i) Anytime, Anywhere, Any-kind Service. (ii) Postal Gateway & Portal, enabling a single \'\rindow service centre at each Post Office. (iii) Transaction-fee based service model. (iv) Smart Client/Web Based Single Window (v) E-government/Citizen Services Channel (physical and Online). (vi) Backend integration with different service providers including: a. Central, State, Local Governments b. Telecom providers c. Money Transfer Agents d. Banks & Mutual Fund Operators. (vii) Automated accounting and settlement system. 28 Transformation of India Post for Vision 2020

8.2.4 ImprOl)e: Enabling Internal Operation.r The last scenario is about enabling internal operations. This is talked about in most organisations but is seldom implemented. It is about making employees more efficient, making them knowledge workers, and auromating the core of the business supply chain, delivery chain, customer relationship management and resource planning. For example: (i) Implementing a Human Capital Management application: a. Human Resource Management b. Payroll. (ii) Automating inventory and materials management. Automating procurement. (iv) Auromating File Tracking & Movement. (v) Providing access to IT: a. Self Service Portal b. E~Learning for Capacity Building & Retraining c. E~mail d. Instant Messaging.

8.3 Extensible Mark-up Language (XML) One of the suggestions was to carryon integration through Xi\IL This is a simple protocol by which different systems, different applications and different operating interact with each other. It is a source code that allows different systems to come together. For example a company's invoicing system talks to its clients invoicing system but with security. XML is based on web service technology, where internet protocol is the backbone of the technology and web technology brings these services together. These services are scalable and can be created as and when reguired.

Figure 8-1: X~IL \'{!eb Services: From Connected Platforms to Integrated Applications Transformation of India Post for Vision 2020 29

XMlWeb Servioos

PCs

Non-PC

logistics

Figure 8-2: IT Architecture for Post

On the left are PC and non PC devices used by employees or customers which are connected to the web services where Xl\lL converts and helps web services to interact with other services such as government serdces. This structure based on an industry standard, can enable strategy and growth.

8.4 Success Stories

Some of the sm cess stories where Slicrosoft has been engaged 111 are:

8.4.1 USPS

The United States Postal Service (USPS) delivers more than 200 billion pieces of mail per year, employs 750,000 people, and generated annual operating revenues of US billion in 2003.

,;rtJIfUNITEOSTIlTES _ ~rllL SE.RI'K1:

I\ll Pllooucrs &SfR't'1CfS A!lO\JT listS ,II1WS

Remember Dads this month.

Tf,H;:k'& COJllirlH 30 Transformation of India Post for Vision 2020

USPS had built the infrastructure to enable electronic postmarks (EPMs), but few customers were using the service because doing so required custom software integration.

By implementing IT technology USPS rapidly and cost-effectively extended its EPM service to millions of potential users.

8.4.2 NZ Post riflers a pJ!ysical channel and an online channel New Zealand had a dated point of sale solution and customer needed kiosks and an platform. Post offices became kiosks where specific e-government platforms could be developed.

"Our business is logl:,tir:" it's about information and document management, it's about customer interaction, it's about customer relationships." Maarten \Veavers, G.i\1. Government, NZ Post.

8.S Conclusion

IT is the key enabler to improve profits and meet challenges for growth in business. This might include providing core and traditional services, other value added senrices, planning internal operations and decisions. Use of IT at a local level and then at a central level can open up new opportunities and provide solutions to many of the problems.

The here is to integrate and collaborate along with the use of the biggest assets of the organisation the vast network of post offices - and build on the strength thtough the use of IT as an enabler and a tool for integration. Internet technology will enable long term integration of customer interface end) and server (back-end operations).

India Post understands the importance of computerisation and has already taken steps in this direction. The Department knows that a disjointed approach would not be beneficial in the longer run. IT should be integrated into the postal network in a holistic fashion.

IT can be a tool not only for employees of the but also for customer interaction and business planning of the organisation.

9. OPEN DISCUSSIONS AND QUESTIONS

This discussion relates to summing up by the Panel Chairperson and the Panelists.

Panel Chairperson: A1. V &Zjasekharall, Ex Officio Member, Planni'Zf!, Commission and Minister of State for Planning, Government qf India Graeme Patti Lee, Senior Postal Policy Specialist, World Bank Amin Saidotm, Director UPU Affairs, Deutsche Post Lf/orldNet Sanjqy A1irchandani, Regional Vice President, A1icrosqji Asia

M.V. Rajasekharan presented the key summaries from the presentations. He pointed out how the EU has stimulated reform in the postal sector, resulting in upgraded technology, diversification, privatization and improved services. Digitisation of services (such as email) and competition are affecting the postal business. India Post must learn from the likes of Germany, which is far ahead in postal sector reform and globalization, to make services more effective and add value to its products.

The presentation by Deutsche Post and Microsoft clearly demonstrated how India Post can benefit from postal reform and introduction of technology to improve and develop new services. \Vith this access to best practice from around the world India Post must cash on this opportunity to learn and

The Government of India has a number of things visualized for the department, particularly in the Five Transformation of India Post for Vision 2020 31

Year Plans, which needs to be converted into reality. The Tenth Five Year Plan's major objective for the postal sector includes:

(i) Provision of USO at affordable prIce (li) Quality of service at international standards (iii) Modernization and process reengineering to acbieve administrative efficiency and better financial management (iv) Minimization of cost of operation and enhancing customer satisfaction (v) Making the postal department self financing.

Major initiatives have been taken towards this. Around Rs 350 crore has been approved by the government for the postal sector, 60% of which is for computerization which the postal department has initiated for modernization. It has an identified future agenda of reforms which include the following:

(i) Identification and adaptation of USO and affordable delivery of services. eli) Pricing of services on a commercial basis. (iii) Setting up an independent regulatory authority to look at tariff fixation. (iv) Review of existing post offices in a time bound manner and better resource allocation for those post offices which do not fulfil the basic norms. (v) Contributory pension schemes to encourage extra-departmental employees to become franchisees of the department. (vi) Multi product multi service centres to be the criteria for development. (vii) Indian Post Office Act of 1898 to be replaced by a forward looking Act to take care of the needs such as competition, convergence and other new developments. (viii) Develop and evolve a credible road map for corporatization of India Post within the 10th Five Year Plan.

It is credible that India Post is moving towards this and learning from experIences from other countries.

10. MODERNISING POSTAL COMMUNICATIONS SERVICES AND LOGISTICS: THE OPERATIONS OF DEUTSCHE POST WORLD NET Solutions for improving quality productivity in mail distribution and operations Amin Saidoun, Director UPU Affairs, Deutsche Post This presentation on modernising postal communication sertJices and logistics focused on two aspects: (i) lvlodemization of distlibution and retail out/ets eli) Alodernisation of Operations: Transport, Sorting Centres, De/ilJery, Quality. 10.1 Introduction - Modernisation

Between 1990 and 2003 "Concept 2000" was launched by the management of Deutsche Post. The concept brought about two major changes: (i) Downsizing in the number of sorting centres, delivery bases and retail outlets. (li) Quality improvement Sorting stations were reduced from 328 to 83 and retail outlets which were all owned and operated by Deutsche Post in 1990 had the concept of "open service" introduced in 2003 (operated by agencies and 32 Transformation of India Post for Vision 2020

Letter Letter 328 sorting stations 83 state-of-the-art mail sorting 11,000 delivery bases oentre Low quality (Approx. 15% J + 1) 3,700 delivery bases P8rCei 95% J + 1 (1.06 days) 140 sorting oentres Parcel Up to 9 handling steps 33 standardized parcel sorting Poor quality (J + 3 and J + 4) centres Retail Outlets Max. 3 handling steps 29,299 Outlets 95% J + 1 (1.1 days) Insufficient opening hours Retail Outlets costs 13,000 Outlets ·Open service" concept Agency concept

Postal Services in Germany Postal Services in Germany Low quality High quality (J + 1) Poor customer service Comprehensive customer service low automation Up to 98% automation High costs Uniform IT systems Very poor DDR-Post Full tracking and tracing

Figure 10-1: Modernisation of Distribution: Successful restructuring partnerships). In 1990, there was no automation, the sorting centres were modernised by 2003, resulting in quality improving to 95%. In the parcel sector change is still an ongoing process.

Modernisation was not financed by selling top real estate and financing plans. After unification the digital code had to be expanded and made 5 digits. The various time periods of the important events is given in the following figure.

,------_.._ ...... ­ Deutsche Post delivery: Parcel

Figure 10-2: District sorting walk sequence sorting

The sorting system of Deutsche POSt starts with the walk sequence sorting, where the sorting is done automatically by districts and transported to the last mile where the postman delivers it to the recipient.

An important of modernisation was address management and redirection of services.

If a company changes its address, for a fixed fee its mail is automatically redirected to the new address through the automatic sorting system. The other service provides mailing houses with up to date address databases providing post offices with substantial revenue. This provides a value added service to the customers. Transformation of India Post for Vision 2020 33

•

••

• r , Movers database

-12 million individuals • & company addresses, updated daily

Figure 10-3: Post Address - Address management and re-direction services

In the modernisation of retail outlets there was a merger between the post bank network, mail services and parcel and logistics services. Here, there is a possibility of a network to distribute different products that come from different business divisions of the company. This means that basic mail, financial and logistics services are provided in all 13,000 outlets. - Deutsche Post Q World Net !:.4AtL EXPRESS LOGiSTltS FtfiANCE

Deutsche Post 2 Iii Postbank Mall Flnallclal Services Express Loghtlc. I I I ReiaU Ndwerk I I I I

Retail outlets are targeted to households and private customers More then 13.500 outlets in Germany provide Universal Service Regulation Authority provides framework for Universal Service in Germany I

Figure 10-4: Deutsche Post Network

In financial services, the postbank is modernising its service delivery and there are now different ways to access the customers as shown in Figure 10-5.

Focussing on profitable growth means: (i) Successful progress in customer business. Oi) Cost efficiency remains a key focus. (iii) Commitment to clearly defined targets. 34 Transformation of India Post for Vision 2020

Retail outlets Rankings - 9,000 + retail outlets inc!. 787 Postbank Centres

Telephone banking Capital(1) 3.0 m telephone banking accounts Das \\-'irtschaJt'imagalin.

(2)

Online brokerage 1.9 m online banking accounts

Agents network for home mortgages (OSL) >5,500 independent agents f!IejMr Testslege, Mobile sales force 374 financial advisors

1. Ranked second best of al/ German financial institutions in Call Center test (magazine Capital 0212004 2, No 1 in Nielsen netratings banks (most clicks/most frequented financial webpage) 3, Top performer according to 2003 e-sa/es banking study from Cambridge Technology Partners (best technical performance) 4, Postbank, bast online Bank (magazine com! Issue 1012004)

Figure 10-5: Multi-channel banking

Deutsche Post will focus on these areas.

• Further expanding advisory services • Driving forward disk advertending business Targets 2006: • Attracting new business in Transaction Banking RoEp 15%(1) Core(2) CIR < 65% • Continuing strict cost management and strengthening active cost culture

• Completing current-sourcing projects

• At least 15%(1) RoEp in 2006, even in an unchanged interest rate environment

• Corel2} CIR < 65% • Major step towards achieving these goals in 2005

1. Calculation of target pre tax RoE based on at least€5,100m Equity 2. Excl. Transaction Banking

Figure 10-6: 2005 - Focussing on profitable growth Transformation of India Post for Vision 2020 35

The main operations along the value chain are depicted in the following figure.

Collection I Linehaul I Letter Mail ~ Delivery '­ A/",,­ ...... ~ ~ ~ ~ ~.~ ~ jZ ~~--:ib--.--i-::::::il!b-::--~ r~ =ry,

Figure 10-7: Mail Operations in Germany - Basic Network Design

10.2 Mail Operations - Transport Deutsche Post transport operations comprise of the following: (i) Collection/Inbound transport o 109,000 post boxes (50 % are served by delivery) o More than 13,000 retail outlets o 3,300 delivery offices o Business customers. (ll) Linehaul 0+1, J+4) (iii) Outbound Transport o 3,300 delivery offices o Business customers.

10.3 Mail Operations - Sorting Centres

Deutsche Post ~.lail sorting centres are standardised, high-technology production centres of various sizes.

(i) 83 high-tech mail sorting centres (incl. International Post Centre in Frankfurt). (n) Straight-through mail centres for sizes'S', 'M' and 'L'. (iii) U Mail centres for sizes 'X' to 'XXL' (are additionally equipped with materials handling technology). (iv) Automatic sequeoce sorting machines are exclusively located in Mail centres. (v) Rate of automation in mail centres: 89(Yo (67% iocL sequence sorting machines).

10.4 Mail Operations - Delivery Deutsche Post delivery operations comprise the following:

(i) One delivery round a day (n) Approximately 3,300 delivery offices (280 with local management function) (iii) Approximately 57,000 routes (11 % foot, 33% bicycle, 56% car) (iv) Approximately 30,000 joint delivery routes (with parcels) (v) Approximately 38.6 million delivery points total, 80% served daily (vi) Approximately 21.09 billion mail items delivered (vii) Start implementation of delivery routes with separated preparation (1,000 routes planned for 2(05). 36 Transformation of India Post for Vision 2020

Parcel delivery DelI_y (jn 1,'!lO dell_y b."",,)

Figure 10-8: Round sorting - sequencing

10.5 Quality The key quality indicator 'E+ l' is measured End to End by an external, independent institute through a certified process (E)./ 13850). The E+l quality has improved from 89% to 95% benveen 1995 and 2000. For the same period the quality of E+2 has improved from 98% to 99%. Despite mail quality being relatively high in 1995 it has further improved and it is important that this is maintained over the corning years.

100IJ

98IJ

& UIJ ttJ C -ill ()... ill 94IJ Q. '"'"ill .§..... 92IJ ..>. .~ 4i 90IJ 0 .....E+1 88IJ -<)-E+2

86IJ UM 1095 UP' UN I'" rCM tQ(lf

1'1». quality meQ~rtl IS done by an independent external institute and dons on m:mthp. basis.

Figure 10-9: Quality measures over period 1995 to 2004

To promote quality districts are compared to each other, the district with the best quality being awarded an annual prize by the CEO. Some of the figures measured are given in the following table. Transformation of India Post for Vision 2020 37

Table 10-1: Quality objectives

97.0% 98.6% success rate 98.0% 98.6%

Correctly processed! delivered

Transit time REIMS ] +1 Import 93.0% 94.5% 94.0% 95.0%

Another important quality aspect is the transit time between countries. If standards defined by the European Union are not met, it has negative impact on the revenue received from other countries. For example, if Deutsche Post does not meet the quality standard to mail from France it will receive reduced revenue from La Poste.

10.5.1 CUJtomer Jati.ifaction Quality requirements of customers are assessed every year. Two online customer surveys are carried out to measure customer satisfaction and customer loyalty. The survey is described in the table below:

Table 10-2: Customer Surveys Narne Frequency Survey design I Method Sample size Target group p p monitor" (since 1992) (German-speaking (incl. semi-professionals) Germany population ?': 16 years of age) -_. KuBiS MAIL Once a year Telephone Approx. 13,500 Business customers I in 2 waves interviews (annual revenues up to

! €50,OOO) ! Business customers (4.2% share) (annual revenues ~ €50,OOO)

Quality management is built on the requirements of DIN EN 9001 which is based on not only results but is process oriented. It is based on two pillars - customer and employee, which means achieving customer satisfaction and employee motivation.

One of the results of the sutvey was that management does not take care of the employees' education. A workshop was undertaken to interact with employees and how employees could contribute to the management through their feedback. 38 Transformation of India Post for Vision 2020

10.6 Five Key Statements for Success of Modernization of Mail Operations

(i) Strivingfor quality leadership: quality leadership both at the national and international centres should be based on quality measured through key performance indicators. (ii) Increasing, cost and process efficiency: improving efficiency at both national and international leveL Improving transparency with respect to tangible financial resources keeping in view the economic interest and corporate social responsibility of the company in the long term. (iii) Satisfying and monitoring customer needs (iv) Strivingfor strategic management commitment: Concept 2000 is one of these projects of Deutsche Post.

(v) Getting empl~J!ee satisfaction: Incentive schemes, internal competition and encouraging employee satisfaction.

10.7 Questions and Answers on Deutsche Post Presentation (i) How does streamlining affect drop in volume? Streamlining affects priority mail adversely and direct mail positively. As priority mail the bulk of revenues there is a huge impact on the total revenue.

(ll) What are the Deutsche Post empl~ee incentive schemes? Employee incentives include adaptability and freedom to follow variable working hours and devote time to family and other job enrichments. For example, a post office has to be open for at least 4 hours and the employee can decide which 4 hours of the day post office will remain open so that he can devote time to his family. This is done on a rotation basis and all employees a chance to exercise their preferences. (iii) How does Deut.fChe Post monitor quah£y? Quality is monitored independently. An external institute is engaged on payment and has a series of panel customers whom they send mail on monthly basis and record time, etc for the delivery of mail.

10.8 Conclusion The presentation clearly brings out the importance of innovation and the five key elements of modernisation. Strong emphasis is placed on customer orientation and achieving customer satisfaction. This not only increases efficiency but also provides value added services and customised products.

Emphasis was placed on monitoring and measuring performance parameters for both customers and employees and keeping both sides satisfied to achieve maximum efficiency.

11. EXPERIENCES FROM LA POSTE

Daniel Le Col); Depury Director International DelJeloplllent, La Poste, France

The presentation described the French Post (La Poste) restructuring experience. The presentation a brief review of the company and then focuses on the network issues in the postal sector in France.

11.1 La Poste Outlines La Poste has been a State Owned Enterprise since 1991, with 320,000 employees, 200 subsidiaries, and 17,000 branches all over the country. It was previously an administration (department) with strong unions. In the late 1980s there was a strike in the postal department, which lasted for a month. This resulted in government organising a debate in which all stakeholders were asked to express their views on Transformation of India Post for Vision 2020 39

expectations from the post sector. Therefore, there was a very strong motivation within the government to change the situation and the government decided to change the department into an enterprise, but without a profitability target and interest forecasting. La Poste was thus created alongside subsidiaries which could be more flexible in the field of products such as express mail. The majority of employees retain civil service status but La Poste, with its more customer oriented approach, is a profitable organisation.

To the present day, the State has played tbe role of the regulator but from November 2005 there will be a new regulatory authority (AReEP) as per the EU directives. The USO (including quality of service) will be specified in a decree and there will be a compensation fund to finance the USa. The contents of the new law are:

(i) Defines the parameters of universal service ell) Declares La Poste as the universal service provider (iii) Defines the financing mechanism for the Universal Service Obligation (iv) Fixes the price-cap and quality of service from La Poste, where bulk mail will have to meet quality specifications.

The European postal environment today is characterised by an ongoing process of liberalisation, increasing pressure of competition, increasing effect of substitution, and changing behaviour of customers and therefore there is a permanent need 0/ adaptation.

La Poste is among the largest postal operators and mail is still the core business of La Poste (figures below),

Among the largest postal operators

Turnovere billion (2004)

lO

lD

70

10 u

Figure 11-1: La Poste...amongst the larger postal operators and La Poste will have to maintain this business but La Poste also intends to diversify its activities.

Most postal operators are expecting a drop in mail volumes in the near future. La Poste has anticipated a 10% drop in mail volume mainly due to the factors as depicted in the figure above. In order to recover the dropping mail volumes, La Poste has developed a new marketing and commercial policy. La Poste is 40 Transformation of India Post for Vision 2020

La Paste 18,5%

Deutsche Poste Post Italiane 19% 7%

Autres 32% Figure 11-2: The European Mail Market

60

50

40

• L~ttE'rs 30 • FinanCial ServICes a Psrce-Is.'Expr':eS9 .. LP Gland Pt-Clic 20

10

o

Figure 11-3: Breakdown of revenue 2004

Anticipation 2004-2007: -10%

Figure 11-4: Factors having an impact on mail volume Transformation of India Post for Vision 2020 41

aspiring to become a leader in various markets with a clear strategy for each of the markets and offering solutions that would help in businesses growth through:

• Direct Marketing • Document and Mail Management • Written communication for individuals

Taking care of individuals, making mail easy and simple are some of the strategies adopted. Traditional mailers are decreasing in numbers and hence La Poste is trying to attract them through:

• An accessible and personalized offer • A simplified posting Diversified ways of delivery, for example delivering mail on appointment, solutions to remove overheads introduce Track and Trace items • A reinforced secured offer.

A recent study on La Poste has confirmed the decreasing trends in mail operations. Some of the findings of the study are:

• In house document management represents a cost of 5 to 10% of turnover • Outsourcing has seen an annual 30% growth during the past few years • 67% of companies and 70% of French major accounts used outsourcing in 2002 compared with 60% in 1999

• According to UPU studies, in 2005 hybrid PC/Web mail should represent 6.5% of the total volume of postal mail • Its annual growth is estimated at almost 30% in the next 4 years.

Figure 11-5: 2007 a key milestone 42 Transformation of India Post for Vision 2020

La Poste perspective for 2007, which is a key milestone, is depicted in the figure below:

11.2 La Poste Objectives 11.2.1 Increasing revenue, a permanent o/::jeclive • Re-defining the mail process (streamlining sorting facilities, transport and delivery networks). • Focusing on quality of service improvement, provision of tailor-made services with commitments regarding delivery times for business customers and direct marketing offer. • Launching new added value services matching with customers needs (Maileva, electronic registered mail, track and trace, etc.).

11.2.3 Focusing 011 cost reduction

The objective of cost reduction has been targeted through focusing on the few core activities of La Poste. The activities on which the La Poste managers will focus are:

• Mail services. • Parcels and express. • Financial services. • Retail network.

11.2.4 Taking adzJanlage of !leU! opportunities La Poste will concentrate on the following for improving profitability of the post office network through adaptation and flexibility.

• Developing financial serV1ces in creating a Postal Bank by January 2006: presently La Poste has 10% share in financial services, but cannot give personal loans, but as first step will be allowed to provide housing loans without preliminary savings. • Developing Parcels & Express activity in order to gain a worldwide coverage (today pan-European). • Getting benefit from new technologies in developing hybrid mail solutions and e-commerce (54% growth in France in 2003 with a 6 • billion revenue).

11.3 K~y Issues of the Post Offices NetJvork The key issues of the post offices network include the following:

• Serving the businesses: Utilising the post office infrastructure • Permanently adapting the structure • Improving customer access • Downstream access.

Every day 3.5 million customers visit a post office as depicted in the Figure 11-6.

Table 11-1: Breakdown of revenue and operations

6% Parcels 46% Financial Services, 1% Others Transformation of lndia Post for Vision 2020 43

28 million dients for finandal

Figure 11-6: figures post offices network

Looking at the breakdown of revenue and operations (Table 111) reveals that mail forms 85% of the revenue and only 47°/.) of the operations.

The provision of financial services enables La Paste to maintain a wide post office network in the country. \Vith the focus on financial services La Poste created an infrastructure \\rith an objective to increase advice to customers. La Poste trained 6,000 financial advisors promoting banking and insurance products:

500 advisors for savings~linked home loans 450 wealth advisors A new function: customer advisor

Table 11-2: La Poste Customer Perception

Strengths Weaknesses I Dense local presence (92 %) Long ---~--~...~~~~~~~~~-, Efficiency ofpost office clerks (87 %) Short hours -~. -~~~~~~ Friendly welcome Need for \[odernisation of facilities r,a Poste measured the customer appreciation and found the following

Table 11-3: Easier access

Cities % of oudets % of population < 10,000 82.8% 51'% > 10,000 17.2 ''ij, 49 "I" 19% 2h30 5 hours 44 Transformation of India Post for Vision 2020

All customers need easier access and the tables below demonstrate that the network does not fit in with the population settlement. Hence the majority of post offices are not profitable; only 4,500 of 17,000 branches are profitable. However, La Poste has to maintain the status quo due to political pressures and has to modernise and adapt to reHect changing behaviour and optimise network through collaboration.

Therefore, La Poste intends to support social cohesion on a nation-wide scale and optimise network access in collaboration with local authorities and super markets to maintain the wide range of ready to mail products.

11.4 Diversification of Postal Presence La Poste diversified through partnerships as listed below:

In densely populated urban areas with hyper and supermarket:

550 outlets in 2004 Wide range of ready to mail products in stationary departments of hyper and supermarkets.

Partnership with tobacconists:

34,000 tobacconists sell stamps More than 3,000 propose a wide range of ready to mail products Remuneration based on percentage of sales.

'Points Poste!~ postal agencies:

Mainly in semi-rural and rural areas Over 500 outlets in 2004 Local retailers providing main postal services Remuneration on a monthly basis with percentage on sales.

Community postal agencies:

Mainly in rural areas More than 1,500 agreements signed Postal activity located in town halls Logistic backup by a nearby PO Remuneration based on level of activity.

"Allo Facteur"

In rural areas, service used by elderly whereby the postman provides retail services:

Phone call required a day before to call postman Main counter operations provided at home Insured 6 days a week by 1,500 postmen along their route.

R~rurbished post offices:

5 years plan for refurbishing and maintenance of 4,000 POs Renovating, repainting, improving lightning and signs

Priority given to low costs improvements. Transformation of India Post for Vision 2020 45

11.5 Questions and Answers on La Poste Presentation

(i) La Post has 200 subsidiaries, }J'hy? HOIv ma'!} people are in them? Does the figure of320,OOO steiff inclflde stafffrom the subsidiaries? La Post has subsidiaries which are generally operating internationally. They are not 100% owned by La Poste. If a subsidiary is not profitable for more than 2 years it is closed down. The 320,000 employees are La Poste employees; the subsidiary employees are not La Poste employees. (ll) What is the process of retraining the in such a organisation? Training is part of the incentive schemes. There are different levels of training e.g. vocational trainings, soft skills training, etc.

11.6 Conclusion La Paste experience is slightly different from the model used by Deutsche Post. La Poste unlike Deutsche Post did not go in for complete corporatisation. It has on the other hand identified mail operations as their core competency and concentrated on developing new products within their competency area.

Mail volumes worldwide are decreasing although a huge portion of post revenue is still generated by mail operations. La Paste has embarked on diversification of their postal presence.

Political pressures forced La Paste to maintain a huge unprofitable network where only 4,500 out of 17,000 branches were profitable. Hence, La Poste came up with an innovative method of franchising out unprofitable post offices through collaborations with supermarkets, tobacconists, community lead <:Pl·,rl.rp" etc.

Some of the points of relevance to India Post include the following:

(i) a new re!:,'Ulatory framework, (1i) focus on increasing revenue and cost reduction, (iii) reserve form of corporatisation \\.rith fund for financing USO, (iv) followini! a subsidiary model whereby India Post can outsource some of its functions to various subsidiaries, (v) flexibility to take advantage of new opportunities e.g. banks, (vi) diversification of postal presence.

12. SUMMING UP

AJha JJJJaroop, Additional Jecreta1,], lviiniJtry Commerce, GOlJernment of India Amitabh verina, Joint Jecreta~y, Financial Sedor, MiniJtt:y of Enance Amin J aidoun, Director UPU AffairJ, DeutJche POJt Daniel Le Gqff, Depury Director International DelJelopment, La pOJte, France

Asha Swaroop felt that India Post is today facing a challenging situation. It has large network of 155,000 post offices, a large manpower and deficit of Rs 1,400 crore in its budget. It is facing stiff competition from e-mail and private operators. Therefore, it has to look at providing new products that meet market demands and offer value added services to the customers.

India Post has made some changes and has introduced new services like Speed Post, Business Post, etc and also provides financial services like mutual funds etc but greater efforts are needed to reinvent India Post.

The presentations show that there are different ways of meeting different objectives. Deutsche Post which 46 Transformation of India Post for Vision 2020

dOJJJJlJized it.r operatioll,r and oU/Jourced some in-house activities and improved quality through mechanisation is one of the models that India Post can emulate.

The questions that arise for India Post include the following:

(i) How can a similar exercise be done for India Post? (ii) Hmv does India Post better its large network? (iii) Should India Post disburse credit? (iv) Should India Post do credit and operate as an agent for banks?

Other opportunities like e-governance are available. India Post should look at few key areas and ensure quality of service in those areas. parameters need to be laid down in high revenue areas. Government is probably not in the position to gi\'e subsidies, and hence India Post should look at tarijjs. The other issue is the for at least future recruitment. (<'en' major revenue centres, infrastructure should be upgraded.

AmitaM VerNia, Joint Seeretm)\ Financial SeetDl; Alim:rtr:y of r'i1Zr/11ee

India Po.rt call explore financial Jen'ieeJ ilL ruml area.. a.. it ha.. a t'el), /!,Dod network.

The Common 0.1inimum Programme of the government also focuses on fNJ.rm../TPfllT ,""'.BiU,,, out to poor, reducing transaction cost to small bOffmvers and the Finance Minister's speech in his emphasised the same.

India Post needs to dovetail financial this should be possible as it already has with Oriental Insurance for Postal Life Insurance and Post Office Sa\'ings Bank is the oldest bank in India (with 140 million savings accounts).

1\ good alternative for post offices will be to fill the gaps in rural areas. There has been a massive jump in rural credit in India especially in but transaction costs need to be brought down. Even today more than 50% of the rural credit comes from non-institutional sector at exorbitant rates. This is because of location disadvantages; there arc only 1-2 branches per block, which means a person has to walk several kilometres to reach a bank branch. If postal outlets can be the agents of the bank they can mobilise deposits and act as credit disbursement and apprais,JI 8gcnts. Thus if there is a smaller area to sen'e it will reduce paper work and promote faster disbursements. There can also be tie-ups with micro finance institutions and self-help groups. The postal still enjoys people's trust and it should make use of this advantage. There are however various implications that \vill have to be deliberated:

(i) Cost implications (ii) Upgrading skills (iii) Designing of products (iv) Revenue streams profitability.

AIurali Krishna Kuma,; OJ/icer on Planning Commission said that !jast office bmmhes are in not been tapped JH/,""H""" are ver} important

(i) Qualif)! is that aspect where the services and products bear upon themselves to satisfy the stated and implied needs of customers. Quality is related to infrastructure and tools that help postal departmental personnel to deliver better services. The manpower that channels these activities and their motivational levels are also important for quality service. Training is a major activity that India Post needs to look into as majority of the personnel are extra departmental and they need to understand and own the services they provide. Transformation of India Post for Vision 2020 47

The annual report 20042005 shows that except for Retail Post that grew by 11 other services ha\'e not grown much. Hence the majority of services have equal potential to gro'N and can be attacked to grow at the same pace. India is a country where there is a clear opportunity to package festive services/ seasonal services, like Rakhi delivery or delivery of fruits from one part of the country to another. (ii) Infrastructure requirements for postal department are substantial and over 60% of the 10th Five Year Plan allocation for India Post is for modernisation of the postal department. This includes computerisation.

The new area of services that India Post can focus on includes e-governance related services. NIinistry of Communication has started a national e-governance programme and there is a major plan for rural areas. The postal department can playa major role in prudding services like State 1vide Area Network, which provide connectivity to the district level and can be an important link in the Prime IVIinister's PCRA programme (Providing Urban £\menities in Rural Areas), provide knowledge connectivity and also provide rural products in urban areas.

13. TRANSFORMATION OF INDIAN BANK INTO PROFIT MAKING CUSTOMER FOCUSED BUSINESS

Ranjana Kumar, Chairperson, NABARD and e:x:-Chairper.ron and IV1anaging Director, Indian Bank

Indian Bank was founded on August 15, 1907 as a "Swadeshi Bank". Nationalised on July 19, 1969, it was amongst the first set of 14 nationalised banks and was considered one of the fastest growing banks till the mid eighties.

13.1 About the Bank - Strong Customer Bond The bank's strength was its brand equity and the bank had 163 lakh customers all over India, 146 lakh depositors and 17 lakh borrowers.

A peep into the bank's (immediately prior to implementation of Restructuring Plan) reveals that the bank \vas facing problems since the late eighties, in the management of its assets and liabilities. Due to progressive spurt in credit growth \vith weak asset quality and without matching growth in customer deposits, the bank's CD ratio grew disproportionately to 64.6°A) in :">Iarch 1992 against 52.4% for all banks), causing illiquidity in the bank. The bank had to rely on high cost market instruments and borrowings from the call money market at exorbitant rates to meet the statutory requirements. This severely strained the bank's profit and profitability. As the bank did not, on its own, take steps to contain credit grmvth, even after it was cautioned the RBI more than once, d1e RBI imposed restrictions on further expansion in credit and pegged it to August 7, 1992 leyel. Despite this, credit continued to grmv. The bank started incurring losses from 1993-94. After incurring losses for 8 years a new management setup was established in 1996. One of the things the ne\v management did was put a stop to credit functions.

13.2 Operating Net Profit the Trend

For 1994-95, eyen though the bank reported a Ner Profit of Rs 14.26 crore, the RBI identified short pro\'isioning of Rs 298.14 crore. Hence the actual position was a loss of Rs 283.88 crore.

The bank continued to show net loss for the years 1999-2000 and 2000-01, thus incurred loss continuously for 8 years before posting net profit in 2001-02.

13.2.1 Bank Restructuring

Based on a study by ICRA, the bank submitted a Strategic Revival Plan to the Government of India, its 48 Transformation of India Post for Vision 2020

owners, in 1997. The hank was recapitalised by a sum of Rs 1,850 crore in 1997-98 and 1998-99. Earlier the bank had received a sum of Rs 645 crore as capital from the Government. However, the bank's performance did not improve and the entire capital infused effectively became 'sunk capital'. The study too did not propose any restructuring plan.

Some of the problems faced by the bank included:

(i) Implications on staff such as the restrictive working environment, poor working skills due to lack of training. (Ii) Loss of business opportunities, loss of customer base and Gross NPAs shot up to 44% of total advances. (ill) The bank's market share in advances fell from 3.79% to 1.9% from in 1992. (iv) Fall in income assets, shrinkage in non-interest income and inability to generate revenues to cover expenditure.

In October 1999, a Management Advisory Group was constituted for suggesting corrective action for improvement in the bank's performance. The Group made the following observations in their report:

(i) J\;fismanagement and neglect of market opportunities (n) Total absence of accountability.

The revival of the bank would be a difficult task but the most important step was to have a new management team which was motivated and ready to take reforms in the right direction.

13.3 Deficiencies in Bank Operation Prior to Restructuring Plan The bank was performing badly because of various factors pertaining to poor business performance and poor human resource development. The factors under each head responsible for the failure were:

13.3.1- Business Performance

(i) There was lack of direction in business strategy. (Ii) High level of Non-Performing Assets and provisions made under prudential norms. (ill) Excessive credit growth bet\veen 1988-95 in some areas only. (iv) Large exposure to certain risky sectors like construction, fum industry, hospitals, educational institutions, etc. (v) Inadequate credit appraisal resulting in an increase of poor quality assets over a period of time: a. Low focus on profitability b. High cost of deposits c. Excessive dependence on volatile and costly inter bank money market due to a high CD ratio d. High operating costs.

(vi) Freeze on lending during 1996 to 1999 cutting sharply the interest earning assets to the bank. (vii) All the three subsidiaries becoming a drag on the bank. (viii) Filing of Public Interest Litigation against the bank in the Supreme Court resulting in periodical and repeated adverse media reporting and negative publicity in the press.

13.3.2 Human Re.rources Development

(i) Weak human resources development and non up-gradation of skills to match the changing needs. eli) Non-existence of an objective promotion and transfer policy and promotions not being given regularly. Transformation of India Post for Vision 2020 49

(iii) Non-existence of corporate governance and lack of transparency in management.

Accountability and fear psychosis among staff due to handing over of large number of avoidable cases to Central Bureau of Investigation (CBI). (v) Consequently, low morale and lack of will to take decisions. (vi) Discouragement of assertiveness and curbing of managerial freedom.

13.4 Restructuring Plan and Recapitalization - An Introduction The bank was put on a Restructuring Plan (RP) by the Government of India in June 2000. The bank made a turnaround, by earning net profit in 2001-02, in a short period of just 2 years, a year ahead of the target under the RP and posted improved performance during the third year of the Plan (2002-03). The Government of India infused the first tranche of Rs1,300 crore, by end-March 2002, 22 months after initiation of the Restructuring Plan (RP), with the CMD and ED signing an MoU with the Government, the first of its kind in public sector banking, for achieving the targets under the RP. The second tranche of Rs770 crore was infused only in February 2003, after Government/RBI watched the bank's performance for 35 months. Various structural initiatives were taken.

~ Organisational Restructuring ~ Branch Rationalisation Effective NPA Management Improving Operational Efficiency of Overseas Brs. Cost Control Hiving off Subsidiaries Staff Rationalisation HRD and Motivation Technology Upgradation ~ Cost Effective Resource Capital Restructuring Mobilisation Credit and Risk Management Internal Control IMPLEMENTATION AND MONITORING BUSINESS PLAN 2000-2003

Figure 13-1: Restructuring plan aspects covered

(i) Four-Tier Structure converted into a three-tier structure, segmentation of branches as corporate, commercial, personal and rural banking. (iD Merger of 119 branches with nearby branches, implementation of credit intensive branches to deal with corporate credit. (iii) Sale of Indian Bank mutual fund and taking over of Indbank Housing by the bank. (iv) Introduction of VRS Schemes relieving 3,295 employees. (v) Credit Management: o Introduction of structured products. o Formation of exclusive Credit Risk l\fanagement Department. o Restructuring of loans on observing initial symptoms before they become sick due to industry or management. o Strong credit appraisal, effective standard assessment monitoring and strengthening of documentation of large accounts.

The steps taken to solve the HR issues were:

(i) Motivation and facilitating regaining of self esteem by staff 50 Transformation of India Post for Vision 2020

(li) Business review and interface with branch managers by CMD at all circles clearly spelling out the areas of concern of the bank. (iii) Performance Review of Circles at periodic intervals. (iv) Bringing about 'Change Management' among staff through address by Cl\fD in the staff meeting at different circles. Cassettes were prepared carrying the message of C'vID for spreading the message fast among all staff. (v) Introduction of a system of incentive to good performing branches and award of shield to best performing circles and best performing branches. (vi) Meeting with Unions and Associations at periodic intervals and sharing the bank's results and performance with them thereby involving them directly in the growth. Promotions effected in the officer cadre in different scales and clerical cadre after a gap of many years. (viii) Framing a policy for placement of officers in overseas branches. Executive Committee in place for selection of managers.

The following policies were put in place and the organisation was made more dynamic so that they can change with time and situation and various committees were formed to run the entire process professionally.

(i) Loan Policy (li) Integrated Risk Management Policy Investment Policy (iv) ALM Policy (v) HRM Policy Compromise Policv for settlement of NPAs (vii) Placement and promotion policy.

Strong emphasis was laid on marketing and various steps taken in marketing were:

(i) Launched "Power Account for Young Achievers" to attract young clientele.

Availed the Services of MBA. students to contact customers and market bank's product and to improve the bank's image. This was a ,eery innovative step, the first of its kind in the industry. Strategic alliance with HDFC Standard Life and United India Insurance Company for distributing their products. (iv) Cash Management Services revised and made more competitive. Mass campaign involving all staff members to market structured credit products. Selection and Placement of a new cadre of fully el..luipped Marketing Officers. (vii) Other marketing initiatives included: o Establishment of evening counters in Market Places. o Establishment of round the clock Customer Care Centre at Chennai, Mumbai and Bangalore. o Tie up with various Business Establishments in Chennai, Mumbai, Delhi and Bangalore to make ATM Cards more attractive. o Entering into International Private Remittances Service Arrangement with Union Bank of California, USA to source NRI remittances. o Tie-up with Air India for financing travel to Singapore. o Tie-up with www.Chennai online.com t()r providing e-banking etc. Transformation of India Post for Vision 2020 51

13.4.1 Impact of -FYstem based initiatives

The impact of the systems has been positive. And the key performance indicator of net profit has shown an increase since. There was also growth in business, profit and profitability during the restructuring plan.

During the 3 years of the RP (April 1, 2000 to March 31, 2003) vis-a.-vis during the immediate 3 years prior to implementation of the RP (April 1, 1997 to ~1arch 31, 2000) the bank's performance under the RP has been quite gratifying. This is evident from the fact that the bank during this period, has improved its performance significantly in all the key parameters as compared to the performance in these parameters during the immediate 3 year period prior to the commencement of the plan.

It is to be noted that this performance was made possible by the same set of staff in the bank, as there was no recruitment for the past several years and 3,295 staff were relieved under the VRS in the first half of 2001.

Government had wanted a written .MOO from the UnIons that they will management a free hand and only after 11 days of talks this was achieved 4 out of 5 unions signed the MOO.

Indian Bank is today rated as number one bank in the south-India based banks. In the end of three years the bank's business crossed Rs 40,000 crore.

13.5 Conclusion

Though the Indian Bank case is not directly related to the case of India Post as it was a crisis that forced the bank into restructuring and also the fact that Indian Bank was a bank in the financial sector whereas India Post comprises the entire sector. However, it is important to understand that restructuring in either case would involve few key requisites:

(i) Clear and stable policy formulation (ii) Corporate planning, governance and management systems (iii) Marketing.

What can be derived from the case here is the way and process by which the HR issues, political issues and governance issues were resolved.

Some of the key learning points from the presentation include the following:

(i) Consolidation of Task force/Management Advisory Group (ii) Move \,lith the government for achieving the targets (iii) Emphasis on restructuring (iv) Setting key performance indicators Incentives for better performance (vi) Sharing information/results \vith the union (vii) Corporate Governance (viii) Emphasis on marketing of products new and improved products. 52 Transformation of India Post for Vision 2020

14. DISCUSSION

Simon Bell, Sector Afanager, World Bank Amrit Pandurangi, Executive Director, Pt7cewaterhouseCoopers Private limited RR Rao, joint Afanaging Director, lCRA

Amrit Pandurangi felt that there are a number aspects which could be learnt from the case study. Some of tbe conclusions include:

(1) The foremost learning is that any bas to follow a structured approach planned in consultation with the of the organisation themselves. It is important that for a plan to succeed, the onus lies \vith the employees of the organisation. (ii) The second important factor is the thinking behind planning for a structured approach. The thinking should always: Aim for a top-line growth through innot'ative planning like that of MBA students, etc. HR delJelopment and attitudinal HR policy and promotion etc. (iii) It is important to understand the business process, service standard, etc. and then look at the cost at the branch level, and hence aim to reduce cost from the beginning. (iv) It is also important to put responsibilities and empower the employees. For example some of the branches were made responsible for handling high value credit and hence the training programmes and of power were oriented towards the same. It is important to note that all branches were not made to provide all services to achieve rationalisation and efficiency of the network. Diversifying for the sake of diversifying is not correct, but it is important to use it as a tool for implementing a number of other particularly for enhancing the core competency of the organisation. (v) Improving service levels and customer orientation was an important step towards U"_H_a"",,,,- business. The bank also used its strong customer base to its advantage and built on it.

Simon Bell, Sector Manager, South Asia Finance and Private Sector, \Vorld Bank pointed out two very specific points.

(i) India Post is not a bank. (ii) The reform process has to be a long term (of the order of 10 rather than 2 years).

R.R. Rao, Joint Managing Director, ICRA. in his assessment of the case pointed out that there are two types of restructuring.

(D An organisation that needs reorientation and restructuring. (ii) An organisation which unless restructured according to market dynamics would lose its market share.

India Post falls in the second category. Revenue post office in India is on the lower side and hence it is safe to assume that there are enough opportunities for upward growth.

The role of the government and the creation of a regulator are important steps. like BSNL came out of Department of Telecom, postal sector can also reform in a similar fashion. for post we are looking at longer reform process like what happened in Germany.

India Post is an organisation of vast reach and as BSNL and it might have to go through the same political processes and restructuring. For restructuring, a lot of things have to be changed such as its accounting system.

It is important that India Post leverages on its and that the management at the rop should be credible and understands the following issues: (i) Turnaround Transformation of India Post for Vision 2020 53

(ii) Freedom of taking decisions (iii) Play an effective role in the change management.

Corporatisation, if reguired, should definitely take three points into account. In the postal sector it is important that there is a clear definition of USO, regulations are clear and stable and does not pertain to just fixing tariffs. In India Post reforms, some of the non-core functions like building maintenance, etc can be outsourced, and in facilities which are marketable, competition should be brought in. There are four dimensions of restructuring of India Post:

(i) Structural changes: what is the role of regulator, etc. (li) Change in business model, i.e. a growth oriented and commercial model (iii) Development of MIS (iv) Human Resource Management.

14.1 Participant Interaction Session (i) \'Vhat do you foresee in the future of the department as a bank? Ranjana fulmar felt that currently the post office is only mobilising savings, it is not providing credit. Therefore, there is a possibility of merging with a bank, and post office needs to sell itself, have an MOU with another bank. Simon Bell, however, felt that although India Post is the largest "bank" in the country it does not act like a bank, it only mobilises deposits and this is likely to continue in the future. (ii) The issue raised in this swion JJJas on tlse of labolt,. by the players. RR Rao felt that if a private player was offering cheaper services in the arena of regulation then it is accepted. However, the private operators are outside the realm of regulation and setting up of a regulatory authority would allow healthy competition. Such competition will bring a need for regulation in order to insure that all operators are on a level-playing field regarding general competition rules. Simon Bell brought out that in India the example of airlines liberalisation helped in reducing costs of the domestic airline operators (Indian Airlines and Air India).

15. BREAKOUT SESSION: POSTAL SECTOR RESTRUCTURING AND NEW BUSINESS OPPORTUNITIES, SCOPE OF USO, MARKET LIBERALISATION, NEW BUSINESS OPPORTUNITIES AND LoGISTICS

Isabelle Huynh-Segni, POj'tal Policy ,Specialis" l¥'orld Bank Shobha Koshi, Deputy Director General (Corporate Planningj, India Post

The breakout session on postal sector restructuring and new business opportunities discussed the following lssues:

(i) Postal sector restructuring • Universal Service Obligation Market liberalization • Sector regulation. (li) Restructuring of India Post Change management • New business opportunities Logistics. 54 Transformation of India Post for Vision 2020

In terms q/ sector poliry there is a need for clarity between the social obligations of the department and the commercial objectives of India Post.

Whilst it is understood that providing nationwide daily delivery of mail to every home and the presence of a post box in every village (minimum population 300) defines the usa there is a need to revisit this definition for all services. There are guidelines in terms of distance, population and income norms, but these guidelines do not reflect actual demand - for example is daily delivery a customer requirement?

If India Post has to fulfIl the Universal Service Obligation then the Government which sets those obligations also needs to come up with a funding mechanism. For example, in Algeria pension payment is a usa for which Algerie Poste is compensated; similarly, India needs to define usa within the context of its service needs.

The Tenth Plan says that usa products will be subsidised and non-USO products will be commercially viable. There was a strong opinion amongst the group that before fixing tariffs for usa products, there is an urgent need to assess whether a particular service is a universal service product. For example, there is an issue of registered newspaper distribution through postal services and postcards being used for commercial purposes despite being heavily subsidised. Hence, there is a need to clarify usa in terms of:

(i) Products according to their usage (mail, postcards, parcel, money orders) (li) Tariffs (transparent, affordable, commercial).

Liberalisation will happen gradually as globallsation progresses.

There was a total consensus on the need for an independent sedor regulator which defines the USO. This meant like in other countries the state would continue to provide the CSO but would be compensated for it.

In terms of restmduring 0/ India Post it was felt that there is need for a corporate .ltrategy. India Post has an extensive network which it can leverage but must prioritize its objectives. The second focus could be on marketing including:

(i) Service diversification (vertical and horizontal expansion), i.e., introduce value added products and focus on competencies. (ii) Special attention for business customers. India Post needs to promote buy-in by business customers for the traditional products in order to promote the new products. (iii) Develop media know-how and promote India Post products.

Currently, there are budget coft.ltraints and inappropriateprocesse.; not in line with the needs of a commercial entity. There is a need for streamlining the processes and process reengineering. India Post should look at the experiences of various countries but also of changes in different sectors like banking, insurance and telecom in India to learn about issues such as HR redeployment marketing, business re-engineering and management incentives.

India Post also needs to revisit its incentives for developing rural branch post offices. At the present time if revenues go beyond a certain level it will become a departmental post office which demands a different level of postmaster. Thus, the person responsible for generating the business of the post office will be replaced with someone at a higher grade. Such practice acts as a disincentive for efficient and innovative officers.

There was a strong feeling that changes in accounting and pricing systems were required to develop cost allocation and understand profits and losses of different products and processes. Transformation of India Post for Vision 2020 55

III. INDIA POST: DEUVERY OF SERVICES AND KEy ENABLERS

16. POSTAL FINANCIAL SERVICES FOR ANYwHERE ANYrIME BANKING

Johannes Petrus (Hans) Boon, Postal Financial Services Specialist, INC PostBank

Hans Boon, presented an overview of the financial services pro!?£ded through the Dutcb postal network and 011 tbe results of a World Bank fonded stut/y on tbe prm!tsion of postalfinancial sert'ices tbrougbout tbe world.

The presentation included aspects of the postal payment issues in Europe, Africa and Asia. He discussed the changes in the regulatory framework in Japan Post and Brazil Post (Banco Postal).

16.1 Introduction Post Offices should be a multi profile, one stop shop providing postal ' financial services and a host of important services including entertainment and leisure such as books and stationary. Post offices should be visually appealing and customer focused so that people are attracted to using the various services offered.

16. 1.1 Post Office Network and Retail Formulae (i) The Dutch Postal Law requires that: o There be a minimum of 2,102 postal outlets, of which 902 are full service outlets o 95% of all consumers should live within 5 km of a full service postal outlet .-­

Figure 16-1: Managing Post Offices and Structure of Post Offices - Retail Network

(~t-----. Sa'lings 1~~~ ~,- 15%

Face: 6!iO.ooO· r~~ 1---....

Figure 16-2: Multi channel Distribution and Structure of Post Bank ~1arket Shares in 2002 56 Transformation of India Post for Vision 2020

o All places exceeding 5,000 inhabitants have a full service postal outlet within 5 km o For every 50,000 inhabitants there should be at least 1 full service postal outlet. (ii) Retail network is jointly owned by TPG Post and PostBank. (iii) Within the borders of the Postal Law, TPG Post and PostBank try to optimally balance costs with service level by applying retail formulas. (iv) On top of this basic shared network there are: o stamp resellers (bookshops, supermarkets, kiosks) o TPG Post Business Point in business areas, dedicated to bulk volume corporate and institutions - not for the individual public) o ATMs (for PostBank cash withdrawals).

16.1.2 PostBank, Netherlatldr PostBank is considered as the world's most advanced post bank in terms of market coverage and financial performance.

PostBank has excellent services in terms of the following:

(i) Accessibility to basic financial services (ii) Efficiency in the payments (iii) Sustainability of the post office retail network.

I Global MIGRATION TO ·'ELECTRONIC" ALREADY WELL ADVANCED

Cash in circulation 50% Cash and Electronic , Cash and Paper I } SWitzerland: Ireland Japan Germa

1989 25% , ------­ ,e.~ i ..____~I--...FFr:.::::a:.:.;.nc:.;:e:....--_1•• Italy •• G'eden ••• • .UK • w. Finland 0% Electronic Paper 0% 25% 50% 75% 100% Paper share of non-cash payments SQur", BeG Globa! Payment Rl!j)O(t 2003 c~c 2004 by Tho s~ et')ll:S~ Gtoop Ar ~~ ((1So"Vcd XSO"J~~" fU""m-M'f-;w:'!·u rI'N~

Figure 16-3: Migration to Electronic Methods Transformation of India Post for Vision 2020 57

16.2 Asia: Postal Reforms

An increasing awareness of the need for posts to operate commercially has lead to their corporatisation in many countries. The trend is continuing with some countries moving towards privatised status, whilst global integrators are competing for core markets, particularly international letters and parcels. The challenge for posts is to change their business models to this new commercial and competitive environment. Some of the key issues related to the Asia Pacific region include the following, some of which are elaborated on further below:

(i) Increasing volumes in Asia Pacific (ii) Indicated gaps in Asian postal services (iii) Facing big issues/challenges including blurring segments (iv) Broadening revenue base (v) Increasing efficiency (vi) E-Commerce and E-Government (vii) Assessment of management priorities.

16.2.1 Background reform in Asia: Increasing Volumes

(i) Challenge of handling more mail in an efficient way.

Figure 16-4: Changing Postal Sector Scenario

Table 16-1: Reforms in Asia

R_ON C4GR CAGR P'*cledCAQR 119.....! ••U.26IO aGO..:!C6!

Afri<:d 2.3% -2.3'% 2..8".1.. Latin Arne rica 7.1% 9.1% 3.7""

E;'I~tvrn EUfU,K: -26.4~ -3.5>r.. 2.8".1.. Asia-Pacific '1.7% 1.4·;0 4.1%

EurQIJC~v. Union 1.3% 2.0% 2.1 Col..

C United States 1.7-...0 2.8% I..8 /"

Carli.n'" 4.4% -3.3>r.. N:A World 0.9"...0 2.2% 2 AC/., 58 Transformation of India Post for Vision 2020 .... t~~;;/~~"I·"lfiiI""••••••••••••••1

(ii) UPU statistics indicate higher growth in Asia Pacific region. (iii) New technology enables posts to improve productivity and efficiency. (iv) A new business model requires a new management style and approach to human resource management.

Mail Items per Employee (Efficiency) 400000 350000 11> 11> >­ 300000 0 Q. E 250000 w "- 200000 11> Co til 150000 E ~ 100000 50000 0 e z,0 ~(it> . \0 V'<> y..o~

Figure 16-5: Mail Items per Employee

Revenue per Employee (Efficiency) 100000 90000 11> 11> 80000 >­ 0 70000 Q. E 60000 w "­ 50000 11> Co 40000 til E 30000 ~ 20000 10000 0 ~,z, . ',0e s'lS \>-0

Figure 16-6: Revenue per Employee

16.2.2 Indicated gaps in Asian postal services

The major gaps include the following:

(i) E-commerce is driving high growth in small parcels - Posts will have no choice but to compete in this area (Competitiveness and Technology). (ii) Cross-border track and trace (currently a painful and inefficient process, yet couriers are doing it so there are alternatives to Posts). (iii) Counter automation that can handle traditional and non-traditional services. (iv) Revenue Protection/Security. (v) ,Bundled Services. (vi) Direct mail and its content management, outsourcing and hybrid maiL (vii) Closed loop communication. Transformation of India Post for Vifion 2020 59

SOUTH KOREA JAPAN

INDONESIA

This map was p~ by the Map De::''1f1H Unit of The Worfd Bank The bCundiuies. colour. denominations and Ifny otJ18r IflloymatlQfl shown on this map de not Imply, on the Pdt! of The World &nk Group, any}tK:igt'nent on the legal statilS of any territory. Of any !8RD34286 endorsernenr or acceptance 01 such b<>urldaNe.... OCTOaSR 2005

Figure 16-7: Overview of Postal Operators in Asia

16.2.3 /SSHes Facin.g Asian POJ-/J­ The main issues include:

(i) Blurring segments: Mail, Parcel, Express and Logistics. (it) international demands to end state owned monopolies and lift ownership restrictions in the postal/logistics sectors (China, Vietnam).

~~R "'e D-rU( Beds [0'

gcvo.., ... ry"'en~

If'~aH'''£ Cost conlrol. transparency and accountability to support liberalisation

Figure 16-8: Assessment of Management Priorities 60 Transformation of India Post for Vision 2020

(ill) Liberalization and privatization. (iv) Competition from large integrated carriers. (v) 1'1ail volume growth, particularly in advertising and direct marketing mail. (vi) Threat of electronic substitution. (vii) High labour costs and limited budgets. (viii) Lack of recognition that posts are fundamental enablers of trade and commerce.

Antiquated servics Limited investments Poor service quality No access to capital Cost inefficient No policy priority

Declining market share Not-competitive

Figure 16-9: Vicious Circle

16.3 Worldwide Postal Financial Services Development Review Table 16-2: Postal Financial Services (PFS) Overview

Region Post Offices Accounts Savings Transactions Middle East/North Africa 20,000 26 million $5.7 billion 94 million Africa 11,500 5 million $0.5 billion 7 million

~ ~-...- _ ...­ Asia 289,000 335 million $83 billion 354 million

...... -~ ...... Latin America/Caribbean 37,000 1.5 million $0.2 billion 65 million

Europe & Central Asia 106,000 16.2 million $4.6 billion 2,850 million TOTAL 463,500 387.5 million $93 billion 3,370 million

Table 16-3: and Central Asia

Payments Payments account and cards and electronic money transfers Savings Tradition as agent of state bank replaced by partnerships Pensions Introduced in several countries Insurance Introduced in several countries Credit In co()pe:ratl0n banks in Romania, Czech Rep and Ukraine Bill Payment Widely existent. In many countries postal networks are largest transactions Institutional In most cases public-private partners Transformation of India Post for Vision 2020 61

16.3.1 Europe m evolution

Table 16-4: Postal Financial Services in Europe and Western Union

16.3.2 Central and Eastern Europe - leap forward

Table 16-5: Postal Financial Services in Eastern Europe • • • •

Estonia • • •

Lithuania • •

Macedonia •

Poland •

Romania • • • • 62 Transformation of India Post for Vision 2020

16.3.3 lvIiddle N011h Africa Table 16-6: "!'>Iiddle East and North Africa

Payments 7.5 million accounts for salary payments and strong position in cash payments and remittances Savings Strong penetration (up to 30% of adults) and over 10% of market usage high (few dormant accounts)

Pensions Access to pensions non-existent; Insurance Access to insurance non-existent, except l\forocco Credit Virtually non-existent but some preparatory activity Bill Payment Some success in bill payment (cash society) Institutional All state-owned, some as separate divisions, and some product partnerships with private sector

Table 16-7: Africa

Payments 0.5 million accounts for salary payments (teachers, military and public servants) Sa'vings Strong penetration (up to 30% of adults) but low usage number of dormant accounts) Pensions Non-existent Insurance Non-existent, some small scale pilots Credit Virtually non-existent, except through some postal banks and small-scale pilots Bill Payment Widely differing per country, often non existent

Institutional All state-owned, some postal banks function as companies ~Cl,,"al<:lI from Posts

16.3.4 Banco Posta~ Brazil - Change in Regulatocy Framework The introduction of a postal bank in Brazil statted in 1996 with policy ideas followed by a feasibility study in 1998 and 1999 involving nationwide market reseatch. A successful year pilot study of 36 post offices in 2000 led to a change in the regulatory framework post offices to become a "correspondent" of a bank in March 2001. This led to a public auction of Banco Postal to find a partner with Bradesco \,\,rinning all 15 licenses in September 2001.

Table 16-8: Latin J:\merica and Caribbean

Payments :sian existent, with the exception of Brazil Sa·vings Virtually non-existent; Brazil has successfully introduced savings services Pensions :sian-existent Insurance :sian-existent

Credit Brazil recently developed credit rnf'pt,'na strong demand Bill Payment Beyond Brazil existent on a small scale and where new technology exists (Uruguay, Chile,

Institutional Brazil is a public-private sector partnership; in some other cases product partnerships

In March 2002, Banco Postal \vas launched in 1,000 post offices with products including VISA electron card, current and deposit accounts. Since then the service has been extended to 5,000 post offices and 3.5 million account holders generated from a section of society previously \vithout access to banks. The average deposit is more than US$600.

In 2003, a microfinance service was launched. Within two weeks it had established more than 6,000 contracts and is now the market leader in micro finance with over 300,000 contracts. Transformation of India Post for Vision 2020 63

Further product diversification is planned with the expansion into pensions and life insurance in the next six months.

16.3.5 Table 16-9: Asia

Payments Few offer services for the payment of salaries Savings Strong penetration with 335 million accounts but high number of dormant accounts; small product range

Pensions Access to pensions HUH-C,,""""" except for pilot projects in India Insurance Access to insurance non-existent; except for pilot projects in India, China Credit Non-existent but being considered in some countries Bill Payment Exist in several countries, Thailand, China, India, Sri Lanka Institutional >AJi state-owned; very diverse models, including product partnerships/ relations with ban

In 2317 (3)% state

Figure 16-10: Japan Post's Privatization 2007-2017

16.4 Implementation Strategy 16.4.1 DiagnoJiJ A study on postal networks was carried out across 63 developing countries.

(i) The study reviewed financial service operation through postal networks in 63 developing countries, with a total of 463,500 post offices, (91 % of all post offices in developing countries). eli) Postal oetworks are uniquely large In 73% of the countries there are more post offices than bank branches, agencies and micro-finance outlets together. As a result of their historic role as component of the public communications and information infrastructure, post offices tend to be evenly spread over the country, and much more strongly represented in rural areas than banks. (iii) Private-public partnerships between postal operators and private financial institutions have emerged in 15 countries. In the past 8 years, postal banking partnerships have expanded access to more than 12 million poor and low-income individuals in both rural and urban areas with a full range of products including credit and insurance on a competitive basis (iv) In about 50 developing countries, the historically evolved postal financial operations provide access to an estimated 600 million individuals mainly for money transfer services and small savings. In 2002 64 Transformation of India Post for Vision 2020

there were 370 million postal savings accounts with a total balance of more than US$ 90 billion and 3.4 billion cash-based money transfer operations (including international remittances). In view of their network size and accessibility, the study finds that post offices achieve much of their potential in financial service delivery to the poor and in rural areas which were previously untapped. Nevertheless, in 54% of the cases reviewed, financial senrices are the single largest revenue source for the postal operator. In more than 70% of the cases, revenues from financial services are estimated to cover the expenditure of the entire post office retail network and to produce profits that help to cover losses in the postal mail services.

Reform needs to be based on an in-depth economic analysis of the postal operator and its markets.

Public postal operators tend to be vertically integrated structures, and diversified service conglomerates of which mail under the usa generates only a small part of revenues, which cannot sustain the postal logistics infrastructure and a dense postal retail network.

Market prospects, environment and challenges are discussed in the next section.

Market Prospects ?

(llberaUsed (Reserved Area) Mall Area) Expres-. letters, Courier, 20% revenues ParcelS Adwrtlslitg 15% 5%rewnues revenues

Postal Logistics & Transport Network From an economlcpointot\liew. if) manyciGes. maDi, Mtjh~ cOle 60% of total cost business of lhe j)Q$tal operator. T til oug" iotrans parent a ¢¢04.mting. toe Usa lor mail senlio

16.4.2 J\;Iarket e1wiromnentJ and challengeJ

High-end market H:gh-end market Profile: payment account wlth Profile: payment accoum the savings account savings account credit card credit carel and Irwestment and investment account

Poverty ilne

Figure 16-12: Scenario 1 Figure 16-13: Scenario 2 Transformation of India Post for Vision 2020 65

In the second scenario the objective is to meet the needs of the B&C market and the high end of the D market. In an India context, there is a growing middle class that represents huge opportunities for India Post.

Value High

Volume

High

Figure 16-14: Challenge

So the challenge is to move from the low volume high value segment into a high volume high value segment.

16.4.3 Strategy Outline

Phase 1

Figure 16-15: :iYfigrant Remittances 66 Transformation of India Post for Vision 2020

Figure 16-16: Payroll/Payment Services

Phase 3

Figure 16-17: Strategy: Other PostBank Services Transformation of India Post for Vision 2020 67

Functionality

Value Added Postal Services VirtUilI Mobile Openrtor (\IMO) +loyaI~iti cleti~lIral'lSJlOrt applications

+Insc.nnce, mrtual funds, securities, credit + Payroll serviCes, Irtemet access, e-mail, service portal +S8vings, !(bill) p8)lTlent services, EF T POS (irter) national money-transfers

elBert situation

Tinl9 Figure 16-18: A l-oearning Curve

16.4.4 An JeT based "OlJeriay" netnJork for the Post Office

Financial services can trigger the development of Post Offices as lCT based "portals", starting with the introduction of basic financial services that can earn back the initial investments.

Services

Electronic network &' :1 til

Physical network iii"

Figure 16-19: ICT based Network Figure 16-20: Infrastructure for other E-services

S<:rvice p.cceS$ POints

to ~ broad array ct Ie) services

/ 8

Figure 16-21: Post Offices as portals 68 Transformation of India Post for Vision 2020

16.4.5 Profile of the Financial SerlJiceJ offered through the POJt

Table 16-10: Consumer PostBank

"Anonymous" "Anonymous" Personal selling Broad range of standard products Broad range of standard products Broad range of specialist products Transparent Transparent Internet/Phone Post Office with multi·channel 24 hours/ 7days Long opening hours/ 6 days Short opening

(i) Customers: Focus on local market and corporate sectors (employers, utilities, retail chains). (ii) Products: Full range of standard financial products and services. Distribution: Direct marketing approach via multi channel distribution. (iv) Institutional: Various options/model, trends towards partnership with fully licensed financial institutions.

16.4.6 Kry OljectiveJ (0 Expansion of a range of financial services into a fully-fledged financial institution and setting-up of a regulatory and governance framework in compliance with the financial sector. (ii) Sustainable, competitive package that also meets public sector policy objectives (access to financial services, financial literacy, efficiency). (iii) Transparency in accounting between postal (mail) and postal financial services and the cost/revenues related to the postal network. (iv) Economic sustainability of the postal network after the set up of the financial institution.

16.4.7 Kf!Y IwteS (i) Regulatory framework for financial services (ii) Corporate governance (ill) Management and managerial autonomy (iv) Human capital and capacity building (v) Access to finance to fund modernisation (vi) Change management and project implementation capacity (vii) Cross-coordination of Government's sector policies (Financial, JCT and Postal) (viii) Commercialisation and building sustainable public/private sector partnerships based on a corporate strategy (Organic Growth versus In/Outsourcing) (ix) Management accountability.

16.4.8 From Jtrategy to adion The strategy in the short-term will involve pilot show cases to demonstrate viability and in the long term the strategy would primarily involve proliferation in terms of service diversification. Transformation of India Post for Vision 2020 69

(i) Market analysis and diagnosis (ll) the strategic concept (iii) Short-term steps: • Optimizing current PFS • International Payments Consolidated Cash Management Building of a Business Unit Financial Services within Post with Cost-Allocation/MIS. (iv) Implementation of the Strategy: Pilot Projects Stakeholders' interactions • Building Partnerships with other parties • finance issues • Regional and International Cooperation.

16.5 Conclusion The presentation captures a broad range of ideas and the changes in regulatory framework across countries such as Brazil and Japan. India Post can learn from those keeping in mind similarities and differences.

The many ideas that India POSt can implement include (1) partnering with similar institutions both private and public; (ll) carrying outpilotprrjectJ in various states in order to study the limitations of the postal services offered and (iii) undertaking stakeholder interactions.

Technol~f!.Y emerges as a key enabler in providing efficient services and front end and back end integration of post offices would increase efficiency and also ensure redtfction in corrupt practiceJ.

Reforms should be based on in-depth understanding of the postal market, future challenges, competition from other segments and demands and needs of the customers and potential users.

17. FINANCIAL SERVICES FOR POSTAL OPERATORS-INTERNATIONAL EXPERIENCES AND RELEVANCE TO INDIA

Joydeep Sengupta, Partner; McKinsey and Compan.y

Joydeep Sengupta, introduced the session talking about strengths in the Department of Post and major reasons it should strongly consider financial services as one of its activities [since the presentation was confidential, only a summary is reproduced below].

As India's savings bank, with 160 million customers and deposits of Rs 260,000 crore (US$60 billion), India Post earns around 45 percent of its revenues from financial services. Tapping the mass retail market, particularly in rural areas, could be a very profitable option for India Post-as such initiatives have been in Europe. Postal operators in many European countries a range of financial services: in France, La Poste distributes home mortgages linked to state schemes; in Italy, Paste Italiane pays pensions and enables customers to pay utility bills; and in Sweden, Posten provides fixed price basic banking services to less profitable customers, with the government the services.

Postal operators in the European Union use diverse models for postal tlnancial services, ranging from a fully or majority-owned bank to a joint venture with an established bank, an integrated model (where the postal operator distributes services for multiple partners while controlling the product offerings, the and the client database), a distribution model (where the postal operator distributes services 70 Transformation of India Post for Vision 2020

for one partner and does not control marketing), and a shared network. In both Germany and Italy the postal operator plays the role of a retail bank.

If India Post is to diversify and deliver high-quality services, it will be important to develop new skills within the post office network, starting with product differentiation and pricing. A key step toward providing customers with financial instruments such as bonds might be to enter into strategic partnerships or joint ventures with commercial banks, as postal operators in some European countries have done. And important steps toward better service delivery might include fostering a sales culture for all branch employees, enhancing the utilization of outlets, adopting the service model used by Brazil's Banco Postal, and improving communications (such as through a down-to-earth advertising campaign like those in Brazil and Germany).

18. FINANCIAL AND RETAIL NETWORK SOLUTIONS

Li 5huang, Program Manager, Posta! Savings and Remittance Bureau, China Post

Li Shuang, Program Manager, Postal Savings and Remittance Bureau, China Post presented a short overview of China Post providing a variety of financial services to different customers across rural and urban areas.

Like India Post, China Post has an extensive rural network and serves across many customer categories. Recently, in August 2003, a new law passed allows China Post to utilize its postal savings funds in an effective fashion. China Post 'has done well in managing these funds through bonds, financial papers, rural credit and other financial instruments.

In 2004, the financial business has contributed US$5 billion which accounts for 44% of the entire post business income. This clearly shows that China Post has done exceedingly well in managing the postal savings fund and is constantly innovating to provide its customers with better products.

18.1 Introduction

There are 76,000 post offices in China among which 36,000 provide all kinds of postal services. There are 33,230 offices which offer postal savings facilities and 25,000 offices which offer postal remittance serVlCes.

China has 260 million savings accounts and the postal saving balance is more than RMB 1,200 billion (US$144 billion). The Postal Savings Computer System (which is also called the "Green Card" system) is one of the largest financial computer systems in the country having excellent coverage. TransformaJion of India Post for Vision 2020 71

China Post has a good outreach and provides a range of services to various income classes and categories. China Post has the added responsibility of providing basic financial services to its people and ensures that the products offered are reliable, simple and reasonably priced.

18.2 Business Category - Features, Performance and Improvement In this section the following is discussed: (i) Retail Financial Business (li) Postal Savings Business (iii) Postal Remittance Business (iv) International Money Transfer Business (v) Postal Intermediate Business.

China postal financial business I

Retail financial services for Wholesale of capital and common people except bond investment credit business facing Inter-bank Market

Figure 18-1: Business Category

18.2.1 Retail Financial Business China Post focuses on the following four aspects in retail financial business:

(i) Improve the channels of postal financial services by H"'~r,

18.2.2 Postal Savings Business Its features are:

(i) Post networks spread all over cities and countryside - total 33,230 post saving networks (end 2004). (li) By the end of April 2005, deposit balance of postal savings has reached 1,193 billion lL\cm (US$l44 billion) (9 % of the domestic saving market). (iii) Abundant client resources - 260 million postal saving accounts. (iv) 61 % of network in rural areas.

China Post is working towards establishing 5,000 postal financial service centres before 2006, which have at least 50 million deposit balances. It is also providing the most needed services to the high-end clients and farmers by employing full-time client managers in rural and urban areas. 72 Transformation of India Post for Vifion 2020

Oeposit Bala nee

2~~

c fS~ t30 1-­ 0 tOO .- .D

00 * S~ ;:)

0

20~2 2(0) 2004 200S

Figure 18-2: Deposit Balance

Table 18-1: Improvements

City client manager Country client manager Objective client Customers who have a large amount of deposit Farmer Function Provide individual financial services Provide basic financial services such as savings and remittance

China Post is providing multi-channels of self-help services such as the ATM, telephone banking and internet banking. lB.2.3 Postal Remittance Business (i) One of the largest networks in China - good coverage in urban and rural areas. (ii) 25,000 electronic remittance offices. (iii) 200 million remittance clients every year. (iv) Domestic remittance balance amounts to 240 billion RMB (US$ 29 billion).

The business has been affected by new instruments such as card and personal accounts, and hence domestic remittance business has been growing slowly in terms of number of transactions.

The improvements undertaken include:

(i) Optimize the remittance product structure by increasing the proportion of self-notice remittance and decreasing the time of post-notice remittance. (ii) Innovation in the post remittance for business affairs and personal transfer accounts settlement business. (iii) Optimize the remittance product structure by increasing the proportion of self-notice remittance and decreasing the time of post-notice remittance. (iv) Innovation in the post remittance for business affairs and personal transfer accounts settlement business. Transformation of India Post for Vision 2020 73

Table 18-2: Remittance

Product Domestic remittance Post-notice remittance Self-notice remittance In 24 hours In 2 hours Real time Special service Return receipt Deliver bill Mobile notes Ceremonial remittance

By end 2005, China Post targets to complete the consolidation of the electronic remittance system and postal system. With the consolidation, China Post will provide three kinds of new electronic remittance products which are as follows:

(i) cash to account eli) account to cash (Ui) account to account

This project will not only reduce the operational cost of remittance but will also increase the efficiency of savings deposits.

18.2.4 International Alonry Tran{fer Business International money transfer business consisted of Western Union, international money transfer to banks and international general remittance service.

Table 18-3: International Money Business

Western union International International monev transfer General remittance to banks The largest international money The oldest international money The most convenient and quickest transfer business - 93% business transfer product international money transfer volume method, directly remit to payee's account -­ 16,000 agency offices can provide Established cooperation This business has been developing this business relationship with almost very quickly in recent yeats 20 countries

18.2.5 Postal Intermediate Business Agency 0/ Treasur.y Bonds China Post is the authorized agency for issuing and payment of national bonds such as T-bonds and Value­ Maintaining bonds. In some provinces, China Post is also the agency for the issuing and payment of local government bonds and enterprise bond. At present, postal department has become a major channel for the issuing and payment of national bonds. In 2004, China post sold 4.3 billion RMB (US$0.52 billion) T-bonds.

Agent] qf Insurance In 1999, postal branches of each province, municipality and autonomous regions signed agreements on intermediate business with local insurance companies. Since then intermediate business of insurance was fully implemented throughout the country. There are 21,947 offices for intermediate business of property insurance and for life insurance (2003). 74 Transformation of India Post for Vision 2020

Other Intermediate Business

Other business includes:

(i) (ii) Intermediate business of charge-collection mobile and fixed phone fee beeper tuition fee, traffic penalty water fee, power supply fee coal gas fee. (iii) Intermediate business of payoff • retirement pension, salary, alms for laid-off • workers, alms for the unemployed, medical • insurance fund.

18.3 Postal Savings Fund-Usage In accordance with the new policy of the Central Bank, from August 1, 2003, the newly-added deposit balance of postal savings is used by China Post itself. Striking a balance security, liquidity, and profitability, China Post is involved in the following business of managing funds:

(i) Bond investment business in the inter-bank bond market, including T-bonds, financial bonds, and central-bank paper.

Table 18-4: Postal Savings Fund

Categor! 2004 (US $ billion) 2005 (US $ billion) Postal Savings Fund Balance 27 41 Revenue 0.6 0.54 (end may 2005)

(li) Large-amount time deposit (negotiation deposit) under cooperation with commercial banks, rural credit communities and other financial institutions.

By the end of 2004, the balance of postal savings fund had reached 222.8 billion R..i\1B (USS 27 billion) with revenue of 5 billion JU,;1B (USS 0.6 billion)

(i) By the end of May 2005, the balance of postal savings fund using has reached 337.6 billion R,.i\:1B (USS 41 billion), with revenue of 4.5 billion RMB (USS 0.54 billion).

18.4 Business Revenues - Break up In 2004, the income of China Post financial business was 42.7 billion JU,;1B (US$ 5 billion), which accounted for 44% of all the post business income. Table 18-5 the percentage of various other forms of business revenue as a percentage of total revenue of postal fmancial senrices.

18.4.1 Strategy 0/ Financial Business (i) Continue to promote the development of postal and remittance business. (li) Follow the market, focus on customers, strengthen cooperation with banks, insurance companies and security companies and continue to create new of financial products to satisfy the increasing need of customers (diversify). Transformation of India Post for Vision 2020 75

Business Revenue Breakup

Postal Logistics, 5%

Philatelic, 14% Financial Services, 44%

EMS,10% ---"'I

Public Service, 27%

Figure 18-3: Break up of Business Revenue

Table 18-5: Revenue as a percentage of Postal Financial Services Revenue

Revenue 2004 2003 Interest income ofdeposit in central bank 80.56% 91.64% Income ofthe use ofpost savings fund 11.81% 0.61% ····---....---....---.... --f----..··----..·----I ofremittance business 4.02% 5.06% ofintermediate business 1.76% 1.62%

(iii) Making full use of postal resources, promote the deyelopment of intermediate business, such as

agency ('> insurance, T-bond, fee-collection and pay-off and speed up the development and application of telephone bank and internet bank (technology). (iy) Pay adequate attention to the use of postal savings fund, strengthen risk control, and increase investment return, (y) Extend cooperation and exchanges with postal, bank and non-bank financial institutions abroad, learn from advanced experiences of business development and management, boost mutual business development, and expand wider space for the development of China Post financial business.

International money transfer business consisted of \X'estern (jnion, international money transfer to banks and international general remittance service.

18.5 Conclusion In terms of numbers, rural network and coverage, China Post is similar to India Post.

The Postal Savings Computer System (which is also called the "Green Card" system) is one of the largest financial computer systems in the country having excellent coverage.

China Post has the added responsibility of providing basic financial services to its people and ensures that the products they offer are reliable, simple and reasonably priced. 76 Transformation of India Post for Vision 2020

19. SUMMING UP

Panel Chairperson: Nachiket 1v1or, ExecutizJe Direct01~ ICICI Bank JohantleJ' Petrus Boon, Postal Financial Services Specialist, INC PostBank Joydeep Sengupta, Pat1ner, McKitlSry and Compan} Li Shuang, Program 1v1attager, Postal Savings and Remittance Bureau, China Post

A discussion chaired by Nachiket Mor, covered the following topics:

(i) Various kinds of services that the post offices provide (ll) Marketing aspects (iii) Learning from international best practices (iv) Role of technology (v) Partnering with similar institutions

19.1 Introduction It emerged from this discussion that the important steps are to stress the present strengths in Indian post offices, assess the potential customer base, tap them effectively and gradually partner with the correct organisations and provide various high quality services. It is also clear that technology should be used as an enabler to provide faster and better means of services. The credibility and brand of the post office should be further strengthened through better image of post offices and improved marketing of post office products and facilities.

Nachiket Mor opened the discussion and questions session, to draw similarities between India Post and China Post and at the same time to learn from the Dutch experience.

The common thread for postal systems across the world is the existing skill base and infrastructure and presence of large numbers of savings accounts. The key issue moving forward is diversification in terms of other businesses such as becoming a financial services provider or stressing on the improvement of core competencies in providing value added services for savings accounts holders, insurance and faster remittances.

The new direction of growth will include investment and expansion, partnering with similar organisations, following different models as presented by ING PostBank.

There are primarily two schools of thought:

(i) Stay within limits, tap existing opportunities, and improve money order remittances and postal savings account facilities using technology as an enabler. (li) Stress on the Indian Post financial business, provide credit and various other financial products to the mass market which consists of the lower income groups and constitute 570/0-60% of the income pool.

In order to implement and deliver the services efficiently, technology is a key enabler and the way forward has two primary dimensions:

(i) Primarily stress on technology, networking all the rural offices and partner with other institutions (MFIs, NGOs, other banks) in a limited fashion. Differing opinions came up: many MFIs, bhoomi, e-seva, ITC e-choupal and other institutions may not be ready to treat the Post Office as an equal partner. Others thought that at the village level the panchayat is of utmost importance and knowledge kiosks are usually operated from here and not from the post offices. Hence there is a need for a paradigm shift to get the post ojJice rtcogtliJed OJ the villageldllJter level kflou"edge dispe!1Jer. Transformation of India Post for Vision 2020 77

(ii) Stress on tie-ups and partnerships with similar institutions like the Panchayat for effective delivery of services. Partnerships will ensure knowledge sharing and effective means of delivery through technology. Private banks will Hnd it proHtable to partner with the Post Oftlce in areas where it is not planning to expand and where the post office already has a ready network. Areas include North East, rural backward areas, Jammu and Kashmir, etc.

19.1.1 Tapping 011 existil1g opportul1ities There are a lot of untapped opportunities in the Indian postal business from its saving account business and remittance business. The value of money order remittances is so low that it presently comes across as a labour/middle class service and does not cater to the business clientele and small traders.

(i) Savings Account There are over 150 million savings bank account holders in India Post. However, there are a large number of people both in rural and urban areas who do not have accounts but are potential customers for tbis facility. Banking is a licensed and regulated business and mainstream banks will not expand beyond a point where it is not very profitable. India Post has a ready infrastructure to offer similar business as it already provides savings account service in rural and urban areas. In Mumbai city itself, approximately 50% of the people do not have a bank account. Clearly there are new directions and new business possible in tbis area. Similar statistics could be available from other cities and states. There is also an alternative banking provided by Peerless and Sahara in rural areas. The most important feature is that they collect cash from the doorstep of the customer on a regular basis. It is relatively easy to replicate these operations by post oftlces since the postman can do tbis very easily and there is the concept of daily delivery of post in India. Tbis would provide universal access to the savings account holders. (n) Money Order In rural areas the movement of the money order business is a challenge as the physical movement of cheques is a time consuming process due to lack of networking and lCT technology between POSt oftlcps. In rural and difficult to reach urban areas, there is hardly any competition from other players ::dJ India Post can become a major player in this Held. For example, in Mumbai there is a section of population in :'vIatunga who are primarily vegetable vendors and they need to remit money back to their villages. For a variety of reasons, they are closed out both from banking and postal facilities. Tapping and serving such already present customer bases for both remittance as well as savings accounts facilities is an incentive for the Post. \'Vith infrastructure in place and no new electronics required such categories would immediately add to Post portfolio of customers. Setting a target of increasing the savings account holders from 150 million to 600 million could be a good way to start. No new competencies are required and the un-served customer base is willing to be included. Such customer categories are easily found in rural areas, slums and other natural expansion points where other banks are not venturing due to high costs per customer. Post Oftlces can play an important role for both savings and remittance activities.

19. 1.2 Diversify btlSiness to prolJide Il1dia Post rznaJ1cial SenJices

It also appeared from the discussions that India Post might be capable of managing the postal savings funds and might venture into credit functions in the future. Credit services by private banks are also limited due to costs and accessibility reasons. This potentially represents an opportunity for tie-up between private banks and Post Bank. Post oftlces have the ready infrastructure and are also present in rural and difficult to reach urban areas.

However some participants pointed out that credit is not just a financial instrument. Due to moral hazard 78 Transformation of India Post for Vision 2020

and adverse selection principles of credit, the postal network may not be in a position to immediately enter into credit services as of now. Tying up with NABARD or other microfinance institutions in order to carry the distribution of credit instruments effectively rather than managing credit operations itself, may be a better intermediate solution. Vijay Mahajan of BASIX representing MFIs, pointed to the difficulties that could arise if India Post were to take on the responsibilities for credit dispensation, keeping in vie\cv the unique nature of micro-credit functions in rural areas.

One idea was that the post office apart from distribution can come up with an identification card for credit agencies including NABARD. India Post with its extensive network and ability to reach out to the people can establish simple postal identity cards with a photo, signature/finger print, etc which can become a powerful instrument for the citizens wanting to access credit or other financial facilities. It was pointed out that the post office already has the facility of issuing an identity card and perhaps it is the only agency which can identify every individuaL

Another opportunity is of assimilating data for credit purposes or assessing the nature of a borrower. This will include not only a savings account data but other aspects to asseSs how good a borrower is and if he is reliable client for credit.

19.2 Way Forward - Advantages of Post Offices Given the extensive connectivity within rural India in terms of physical post offices being present in all regions, the post office should immediately tap into this connectivity rather than invest in creating a technology infrastructure itself. In India, with the IT advantage is creeping into all states and remote areas, entry barriers are going down gradually.

Immediately, continue with existing services, existing products, and existing infrastructure and invent and spend money on technology only. As things move on, other financial services will become important. l'vfany private banks such as ICICI Bank are keen for a tie up with India Post for commercial possibilities for financial and insurance operations.

19.3 Participant Interaction Session This section presents certain questions, comments and issues that were raised by participants with regard to the presentations made by speakers in the panel and implementing the same in the Indian context.

P.I<. Chatterjee pointed out that Post Office would like two things at the same time and how should it go about solving the issue

~) India Post is aiming towards self sufficient banking and serve different customers and develop competitive banking with an expanded portfolio (follow the example of China Post and Dutch Post). (Ii) At the same time, India Post enjoys certain privileges under Finance Ministry such as specialised bank accounts for senior citizens, MIS is not available in other private banks which is for senior citizens and ensures a fixed rate of return.

Joydeep Sengupta clarified that India Post can continue to enjoy privileges in the short term and at the same time move Out to capture competitive advantages and opportunities. He also stressed on tapping mass market opportunities which need banking services.

Nachiket Mor believed that financial services are difficult to invent and therefore the first step is to tap the existing customer base rather than having an entire array of financial services as suggested by Joydeep. Savings bank accounts should have deeper penetration like what Peerless has in West Bengal. The post office should follow the same example. Transformation of India Post for Vision 2020 79

He suggested starting by working around the service dimension which is independent of governance structure. Like in Dutch Post, the service offered should come with a look and an ambience which attracts customers. Immediately, it is not about out of the current product and inventing a new product but to play the role of a distributor for commercial banks. The service infrastructure and network should be put into place. The \vay forward is to plan for providing such a

Ramesh Ramanathan pointed out that currently, the decision making process is cumbersome and given the structure of postal systems there are no real decision makers. Hence new ideas should be tried and tested by partnering with stakeholders.

Hans Boon suggested that the post office will have to find business opportunities and put them forward as public sector policy, focus on stakeholder interactions and reach on mutually agreeable terms and conditions between the Department of Posts and Finance IvIinistry. In general, projects in financial services require more effort to implement given aspects of commercial viability and addressing public sector issues. Partnering is important in this regard.

Vatsala Raghu mentioned that India Post has tied up with NABARD for a micro-credit in Tamil Nadu which has been selected as pilot partner by the Department of Posts and this will be replicated in other circles.

Nachiket Mor, concluded that building a national consensus at the central/ministry level can often be a faster decision making process rather than working at state/local levels. Hence the decision making process may have to come centrally rather than locally.

Simon Bell, Sector LH'U><'~'-L, World Bank raised the following points:

(a) The 20-30'Vo of the rural population with bank accounts have them \\1.th commercial banks or with institutions such as Sahara and Peerless, not post office accounts. (b) In Brazil, the Post Office had enabled 3.5 million extra people to access basic banking services.

Rajkumar brought to attention that qliality and credibility of post office services are in doubt in certain states like Bihar as transactions, while reaching the last mile, become expensive due to "unofficial" charges. (The official charge is Rs 5 per Rs 100 money order but unscrupulous practices could make it as high as Rs 25). This has led to question the credibility of post office services in the state. He also felt that lack of technology added to credibility problems in terms of corrttption.

IIowever, the Department clarified that such examples are not applicable universally; overall the Department has sufficient credibility.

Hans Boon presented three issues in this regard:

(a) Absence and lack of marketing for post oftice products. (b) Habits, traditions and culture: saving habits in post office products. (c) Lack of technology: some post office employees are able to fraud due to improper records.

Padmini Gopinath stressed that India Post does not have a Savings Bank marketing arm and is not trying to target segments in rural India which do not bank due to traditional and other reasons. There are agents who canvas for savings, India Post merely provides bank service.

The broad conclusions include the following:

(a) Key enablers for reforming India Post which include the role of technology, partnering with similar organisations, proper fund allocations, implementing international best and improving marketing skills of India Post. (b) Understanding inefficiencies v,,;'thin the Department such as corruption, time lack of technology, etc. 80 Transformation of India Post for Vision 2020

(c) The solution lies in terms of drawing clear action plans and implementing the same on a long term basis.

20. OPPORTUNITIES FOR INDIA POST PROVIDING E-GOVERNMENT SERVICES TO RURAL POPULATIONS

Subhash Bhatnagar, Professor, IIM Ahmedabad, Head of Centre for E-governance at Ahmedabad, E­ Government Advisor, World Bank

Subhash Bhatnagar, reiterated the fact that the menu of opportunities for improving the post and exploiting opportunities in many new areas are diverse. India Post should become a main access point in rural areas by leveraging on its physical outreach. For India Post there are three main ways to implement financial sen~ces in terms of being a manufacturer, a distributor or both.

E-government services are particularly important and have to be taken to rural areas. From the point of view of expanding services, it is important as the bulk of the population lives in rural India. There are existing gaps in taking e-government services to rural India and various changes in attitude and performance is required to bridge these gaps. Tele-centres for paying bills and creating electronic markets for rural India are some of the options.

20.1 Introduction ICT Enabled Transformation includes the following array of services: (i) Improve postal services in terms of service quality, cost reduction, growing volumes: • Postal and communications services. Value added in postal services. (ii) Become an access point for expanding e-Government services into rural areas. (ill) Plug into e-markets that are getting created by substituting missing or weak components.

(iv) Develop full fledged e-markets and sen~ces.

20. 1.1 Understanding needs of Rural Cmtomers

Rural customers require a host of things in terms of information and technology, while interfacing with government (paying bills, getting land records, passports etc).

Out of the 600,000 villages in India only 10,000 villages have access to any kind of computer facilities and 5,000 are connected witt the internet. Many countries including India have tried various telecentre projects which have been successful. Transformation of India Post for Vision 2020 81

The rural citizen can take the following advantages from E-services:

(i) Supply of consumer produce and services (ii) Supply of inputs (ill) Issue of certificates and licenses (iv) Procurement of produce (v) Development information projects, program schemes and feedback (vi) Access to markets (\cii.) Education, training and enhancement of economic activity (\':iii) Delivery of health services and facilities (ix) Entertainment and social needs (x) Knowledge and information for economic activities.

The above picture demonstrates Access Points for rural India, one form of which is lTC's E-Choupal. It is one of the most important focal points of information technology in villages. It involves a trained and trustworthy person who can resolve various problems of farmers in terms providing knowledge required for farming, agriculture, irrigation etc.

Within the scope of E-government services, India will be spending US$4 -5 billion in building access points. India is an important country under the e-government plan and India Post can plug into such services.

20.2 Empowering Rural Customers: Potential for Partnership India Post enjoys advantages of the strong physical rural network, ability to move documents from one place to another and a postman! postmaster who know the people in the village.

Given the fact that India Post is a government organization that gives rural citizens a sense of trust and understanding, it is well positioned to provide various services on behalf of organisations already present in rural areas.

20.2.1 Issue if land titles through computerisation Previously land titles were done manually but have now been computerized at 200 offices at Taluka level in Karnataka. The system is efficient and a copy ofland title is handed over in 15 minutes for an inexpensive charge. This is a revenue generating activity and people in rural areas are willing to pay for an impr~ed quality of service. In Karnataka 18 million titles are issued earning a fee of Rs. 270 million (51 % loans; 14% verify mutation: 16% courts).

The main disadvantage lies in the fact that people still have to walk to the Taluka headquarter which involves costs for travel and loss of daily wages. The Post Office can tap into this facility and provide it at the village level through their already present network. Bhoomi is keen to partner with India Post to build mutual trust between government and citizens, and it is felt post offices can offer this trust.

20.2.2 E-Seva Centres In Andhra Pradesh, US$7 -8 million has been invested in such centres which are being used by 3.5 million citizens. It involves collection of Rs 300 crore per month. These common service centres can apply for paying utility bills, providing passports, etc in 45 locations in Hyderabad. They are not present in rural locations. Rural citizens also pay utility bills and indulge in transactions. An economically viable model for the rural areas is feasible through the post office. It will not only empower the rural customers but will also generate revenue for post offices. 82 Transformation of India Post for Vision 2020

20.2.3 Railu)qJ Reservation The Railway serves 5 billion passengers per annum involving 550,000 bookings per day and only a miniscule percent of these are internet transactions. Clearly, in rural areas, the population needs to access such services and they are only available at the railway station. A basic internet connection alongside trained personnel will solve many of the problems. Such services can be facilitated by post offices.

20.2.4 PropertY Registration In Maharashtra, 2.2 million registrations have been delivered with an annual collection of Rs 2,900 crore. In AP, there are 400 oHices at a cost of US$5 million. There are 5.7 million registrations, 3.6 million encumbrance certificates and 2 million valuation slips. For property registering in Maharashtra and Karnataka, one does not deal with the government anymore but with the private partner to whom the has been outsourced. Private partner usually puts in investments in terms of technology, better skills and management practices. This simplifies activities and makes systems far more eHicient.

20.3 Operating Model The evolving operating model for Access Points in rural areas should be such that it is able to understand and cater to the needs of rural India.

(i) Self use and assisted by staff

(ii) Days and timings: 24 X 7 operation or 12 X 7 in assisted centres (iii) Conveniently located access points (iv) Services offered by multiple from different levels of Government and even private services (v) Online delivery of one/few steps in a service versus the entire tasks or several steps done in one go Services handled Receipts/Payout/Documents (vii) Multiple access equipment: PC, Cell Phone, ATM, Phone.

Banks are helping to set up computers/phone lines in rural areas. India Post needs to partner and make use of technological facilities.

Government needs to license various private operators, which the India Post can take care of in rural areas. Mutual trust between the government and citizens is essential for the success of the above functions.

20.3.1 Desirable Attributes in Access Points (i) Conveniently located physical space (present with India Post) (ii) Reliable ICT infrastructure and Internet connection (create or partner) (iii) Service orientation in counter staff (training and willing to serve) (iv) Trust in relationship with service providers (license) (v) Citizen's trust in agency and low corruption (India Post is low in terms of corruption and is a trusted brand with people) (vi) End to end movement of documents (vii) Handling payments and transfer of funds (viii) Understanding needs for information and services (postman knows the people and can provide these services) (ix) Marketing and ability to sell services (India Post needs to create a stronger brand image) Transformation of India Post for Vision 2020 83

(x) India Post can partner with suitable organizations or select an appropriate model based on international examples.

India Post can partner with suitable organizations or select an intermediate model various from international examples.

20.3.2 K~)1 Sliccess Points Successful scaling up requires understanding rural India and implementing the correct kind of operating model. Many pilots are already successful in various districts and villages but in the context of a large country like India larger projects at the state level are required. These state level experiments are important vis-a-vis national level policy making.

The post master generals in various circles need to invent and decide on policies which can be implemented in other states. lTC's e-choupal has been very successful and there are 4,000 choupals in rural farmers' homes and they are deriving value through knowledge transfer.

Organisations such as Bhoomi and intermediary companies such as Drishti partner with rural entrepreneurs who are setting up rural kiosks and also partner with service providers at government level. Such organizations also provide and management inputs, maintenance and logistics support. India Post can easily partner with such organizations in order to leverage their operations and provision of facilities.

Success is likely in organisations with financial resources, leadership, project management and ability to discover services that are valued. Three models have emerged:

(i) Large private/public/cooperative sector companies operating in rural markets may be able to derive sufficient value by improving business processes. (li) Government services that are valuable can charge a user fee for electronic delivery through privately owned telecentres. Intermediary organizations partner with providers of valued service as well as rural entrepreneurs who create access points to orchestrate the operations of a network of kiosks.

India Post needs to partner with the correct people and organisations in order to achieve the best of serVIces.

20.3.3 IJJJles ill Replication and Scale Up Successful projects demonstrate that the rural population is willing to pay for true value addition and that poor telecom access and infrastructure in rural areas involve high installation and maintenance costs.

There is a need for network orchestrations by organisations who can tackle the following issues:

(i) Bring together partners with specific value proposition, incentives and rules to cooperate. (li) Combine emerging and traditional technologies to overcome constraints. (iii) Adapt business models to local contexts Harness entrepreneurial capacity of the rural community great acumen, but needs plenty of training.

Managerial capability to execute complex business models and to manage large scale operations. (vi) Enablers of innovation in ICT use.

20.4 Conclusion

India Post should focus on Technology, People, Innovation Process and Funds in order to improve quality of service and implement new products. 84 Transformation of India Post for Vision 2020

Greater political will, technology infrastructure, appropriate funding, enabling policy environment, building human capacity, partnerships with the correct people and organisations, creativity, entrepreneurship in management, and creating greater awareness in citizens particularly rural India will help India Post to invent and transform.

To conclude greater technological skills will not only act as an enabler for post offices in terms of providing better services, generating revenue but will also ensure Universal Service Obligation (USO) function for India.

21. USING THE INDIAN POST OFFICE NETWORK FOR MICRO FINANCE SERVICES

Vijqy Mahqjan, Managing Director, BASIX

Vijqy Mahqjan, explained the function of micro credit organisations in rural areas and that it is an interesting proposition to disburse credit through the postal netzvork.

The demand and supply for financial services such as credit, pension and insurance in rural areas is high and India Post can increase provision of these basic facilities through intelligent partnering and proper understanding of the subject.

Vijay Mahajan had conducted a study on using India Post network to disburse micro-credit in India. He had suggested a pilot project with NABARD which has taken shape in Tamil Nadu circle.

21.1 Introduction Out of the one billion people, 720 million live in rural India and 300 million still live below poverty line. Financial services are badly needed to help mitigate poverty.

Rural people want to save in assets largely but they do save in financial instruments to a certain extent. The financial services relevant to the lower income group include:

(i) Saving Services. (ii) Credit, for short-term and long-term uses. (iii) Insurance (for life and livelihoods). (iv) Money transfer/remittance services. (v) Pension and Provident funds and (vi) Mutual Funds and other investments.

The idea of financial services is relevant to the lower income group. Lower income groups have the willingness to pay if the quality of services is good and cost effective. Pensions and provident fund are also important for this sector. There are 4 crore people who will retire in the near future of which only 7% have proper access to pensions. India Post can disburse pensions to rural India through its network.

21.2 Demand for Services 21.2.1 Demand for Saving Services As per the study by the NCAER (1994-95), rural households save Rs 5,056 of which Rs 1,804 is financial saving per annum. The estimated financial saving of the rural households is Rs 400 billion or US $ 8 billion in 2002. Transformation of India Post for Vision 2020 85

The poor want to save against the following contingencies:

(i) Illness, calamities, death in the family, etc. (li) Source of equity or margin to take loans (iii) Liquid assets.

21.2.1 Demand for Credit India has over 115 million farms and 35 million non-farm (rural and urban) micro-enterprises. The incremental working capital needs of these entities are Rs 6,000 per entity and add up to Rs 90,000 crore (about USS 20 billion). In addition, there are investment capital needs of Rs 30,000 per entity, say for only 10% of these entities per annum, which works out to Rs. 45,000 crore (abour US$ 10 billion). Thus total demand is Rs 135,000 crore (US$30 billion), per annum, not counting consumption. Only less than a third of the total are being provided \vith credit by private sector banks and approximately 1 % are provided with micro credit.

21.3.1 Demand for In.mrallce The demand for insurance is not well articulated. A study has shown that 64% wanted insurance services which include the following:

(i) Life Insurance 44% (ll) Livestock 30% (iii) Crop and other asset insurance 20 %

Estimated premium income from rural households is Rs 40,000 crore per annum.

Immediately, India Post should out of credit functions and leverage on other skills and provision of basic services and facilities.

21.3 Supply of Services 21.3.1 Sttppfy of Salling Smices

Formal Financial Institutions are unable to serve the savings need of the poor, as they save small, irregular amounts on a frequent basis. The transaction costs in providing saving services to the poor by banks is 2.2 percent to the customers.

Hence, the poor uses other alternatives such as chits, bisbis and Rl'iBCs (Sahara, Peerless). Sahara has 25 million customers with total assets exceeding Rs 9,600 crore.

21.3.2 Sttppfy of Credit SeniceJ Credit provision by informal and formal sectors vanes with income group, with the lowest income households getting more credit support from the informal sector and vice versa for high income households.

The AlDIS survey indicates that in 1961, the informal sector provided 84% of credit and the formal sector 16%. By 1991 the figures were 36% informal, 64% formal.

21.3.3 Sttppfy of Insurance The supply of insurance increased in the 90's, providing various products such as:

(i) Life (individual, group) (li) Non-life against natural calamity, fire, theft, etc. 86 Transformation of India Post for Vision 2020

Crop and livestock insurance have reached the rural areas but have not met the demand.

21.4 Leveraging Post Office Network Post Office Network is ideal for delivering financial services to rural India because of the following reasons:

0) Adequate infrastructure and manpower in India (154,919 branches), 90% in rural India. (ii) Postmaster and Postmen have good knowledge of the area, the people and are respected. (iii) Already providing financial services and has good accounting system. (iv) Being a part of the Government, it is a safe place for savings and the people also think of their money being safe if it is in the Post Office.

21.4.1 MFls Views on deliz1eting Savings through the Post Office NetuJOrk There are 1,600,000 Self-Help Groups (SHGs) linked to banks as on March 31, 2005. SHGs are allowed to keep surplus savings with them when banks are far off.

Few people in rural areas use the Post Offices to deposit surplus savings, but many are not aware of POSB and the savings account facilities are still underutilised.

There are plans to form hundreds of thousands of SHGs, which can be linked with Post Office.

The pilot project with NABARD in Tamil Nadu needs to be monitored carefully for lessons and scaled up. MFIs restricted form mobilising savings as per Section 45 (S) of the RBI Act, 1936. SHGs collect savings from the members.

Ucensed MFIs are willing to use the India Post network to mobilise savings for two reasons:

CD It has large infrastructure and manpower (li) Post Office being part of the govt, people feel secure.

The post offices can help MFIs to increase the outreach at lower transaction cost. MFIs could use the Postman for collecting deposits like a "pygmy deposit collector".

21.4.2 }vff]s t'iews on delizJering Alicro-Credit through the Post Office Neill/ork (PON) Distributing micro-credit needs special skills which include the following:

(i) loan origination, (li) appraisal, (iii) documentation, (iv) lending and, (v) collection.

Post offices do not have trained postmen do carry out such activities. MFIs are not willing to use the Post Office network immediately as the clients may lose the financial discipline developed over years with huge effort. Instead the post offices can experiment with SHG - Bank linkages.

21.4.3 MFls views on delil Je!7'ng insurance through the PON MFI customers want insurance service both life and non-life. MFIs can act as for RPLI to cover their SHGs/clients. For group and non-life insurance, post offices can act as agents for LIC, GIC and private insurance agents to reach the poor in the remote areas. 21.4.4 Monry Transftr/ remittance/loan disbursement and collection through the PON MFI faces the risk of theft of loan during disbursement and collection. Insuring these loan amounts is not v-iable.

The MFIs are willing to use post office transfer facility. However, the cost of transfer through the post offices is very high.

21.5 Suggestions for India Post

Financial services are limited in remote areas in the North Eastern India due to pre-dominantly hilly regions which are difficult to access and sparse population. Eleven Regional Rural Banks (RRBs) have only 650 branches and have mobilised Rs 1,545.6 million, the least among all regions. The CD ratio is 30%. In contrast, the region has 6,857 post offices, over ten times the number of bank branches available.

The postal network can accept the challenge of providing financial services in this region. The RRBs could shut down their non-viable branches and people could use Post Office network in the areas.

(i) In remote areas, banks can use post office to distribute loans and collect payments. eli) The Post Office need not take responsibility for repayment, but its proximity will encourage repayment in villages. (iii) The use of technology products like "debit cards" or SID PCOs as "Manual ATMs" are other alternatives which reduces the risk involved in cash transfer.

21.6 Conclusion The postal network must tap the main !Jnergy between telecom and financial services network and leverage on this.

It is clear that 1vficro Finance Instimtions and Self Help Groups are willing to tie up with India Post in order to share each others' network, skill base and experiments in order to deliver and implement services such as savings accounts and remittances facilities, insurance, pensions and provident funds together.

The post office has a clear advantage of local knowledge, extensive network and credibility of being a government organisation. Rural citizens and post offices have a relationship of mutual trust and good will.

India Post does not need small pilots at the district levels. It should consider state level pilot rather than small villages/districts. The NABARD micro-credit pilotpro/eet should be carefully monitored to implement the same in other states.

Currently, MFIs are not keen to deliver micro credit through post office network as credit requires certain skills including understanding credit functioning, deep interpersonal skills, documentation etc.

22. BREAK OUT SESSION: FINANCIAL SERVlCES AND TECHNOLOGY, APPLICATION TO INDIA POSTS, PLATFORM REQUIREMENTS, EXTENT AND COST BENEFITS OF COUNTER AUTOMATION

Nachiket AJor, Executive Director, ICICI Subhash Bhatnagar, Prifessor, IL"1 Ahmedabad and Head of Centre for E-governance at Ahmedabad

Vijt9' MahqjanJ Managing Director, BASIX

Nachiket Afor chaired the session Jj/hich comprised two presentations made I?Y the above speakers.

While Subhash Bhatnagar assessed the importance of technology for leveraging the postal network and importance of a ~viable operating model stressing on partnerships with suitable organizations, Vijay 88 Transformation of India Post for Vision 2'020

Mahajan, suggested partnerships between the post offices and '\{FIs and SHGs to focus on improvement of access of facilities such as savings accounts, remittances, insurances and pensions in the rural areas,

Nachiket Mor mentioned that the north-em-t is a potential area and the post office can acquire a niche in providing financial services in the region.

Many interesting points were raised by speakers as well as participants regarding financial services being provided by post offices, pros and cons of technology as an enabler and also issues about partnering with several suitable organizations sharing networks and skill bases.

Ramesh Ramanathan commented that credit should not be taken serious!;, as a direction due to pros and cons in the market risk that it bears. The large mass market including the lower income groups should be tapped for savings. MFls are comfortable working with Post Banks on the saving side but not on the credit side due to institutional and capacity issues. He also mentioned that there are clear benefits of working with l'vIFIs and linking their networks.

K Tiwari felt that post offices must get into disbursing of credit and not repayment of credit. They should collect savings through savings banks operations and disburse money as disbursement of credit is dismal in the rural areas, Post offices would be able to disburse funds through bank collections and because of its ready infrastructure in rural areas, the rate of repayment would likely be high. Partnering with MFIs or other suitable organisations can be an important step. Partner's objective should be to ensure the repayment of credit and post offices can become more credible, reducing deficits in the long run.

Post offices have a natural advantage of collection and disbursement and should immediately focus on these two aspects rather than becoming over ambitious. The post office staff is presently not skilled enough to carry out credit operations.

Vijay Mahajan, that bifurcating disbursement from appraisal and repayment is doable at reasonable costs using technology and especially so if disbursement is electronic. The IT advantage is a natural edge for India and post offices can convert cash to smart cards for which post office infrastructure would need to have swipe card machines/ATMs to access money.

E-money can eliminate many costs of physical transactions and also corruption at grass root levels. As transaction size is small and financial services have to become more electronic, post offices should use technology to the possible extent.

Nachiket Mor brought out that core competencies should be utilised through marketing of current services and facilities. Post offices should improve their work culture in terms of flexibility) connectivity and technology, customer service skills and problems at grass root level must be sorted out.

The reasons for delay in money orders should be tackled through improved networking and the confirmation should be faxed/ emailed rather than returning through a small slip of paper. Marketing of postal products can be done through a postman or a postmaster who is already aware of the local people and their needs.

He also raised the question of how to incentivise branch post masters to generate revenue through increased sale of postal products. A participant from the postal department clarified that the post master does not have an inbuilt incentive mechanism to generate increased sale of postal facilities and products. He also felt that there is a big gap in terms of pension schemes in rural areas and that post are in an advantageous position to operate in this field.

Rameshwari Handa clarified that due to absence of marketing of postal products people are not aware of detailed post bank saving facilities. However, given the strong brand image of India Post, people would be ready to invest in such products with an increase in awareness of the postal products.

Others felt that just a savings model whereby post offices collect money from people and transfer them Transformation of India Post for Vision 2020 89

to the government, is a limited role. Hence this needs to be changed following various international examples. Technology and connectivity will change the future of post offices. Since state governments typically promote panchayats and not post offices, the Department of Post needs to take a clear stand on the issue.

U Srinivasa Raghavan felt that the focus is in terms of developing efficient service delivery. The basic axiom is service and e-governance and how the post office can deliver the last mile advantage. The efficiency and reach are the two most important aspects and this can be done through technology and partnering.

The idea of credibility is not a big problem as India Post has a strong brand image. The default rate of money orders is a small percentage and can be corrected through technology. By the Eleventh Plan all departmental post offices will be connected through computers and hence the important issue is going to be what the ideal model for operations should be. It should be flexible and through networking post offices should be able to launch financial products based on examples discussed.

The strengths in the post offices are immense in terms of a dedicated workforce which might be less educated but able to move up the value chain fast. In a lighter view he mentioned that postal services are so efficient and fair that they even deliver money orders to terrorists operating in Jammu and Kashmir where other services are poor.

Post offices should partner with MFIs and watch the Tamil Nadu circle very carefully in order to replicate in other states. The real issue is not inefficiency or credibility but the use of technology to deliver services promptly and increase the skill base through progressive training and learning.

Vijay Mahajan felt that India Post is looking for a huge transformation to issues which go beyond technology. Transformational change should include ideas for railway reservations, computerisation of land records, property registrations, e-service centres alongside other services for which there is a huge demand in rural areas. Such transformation will require not only technology but strong organisational backing and support of leaders and thinkers like Sam Pitroda and Kurien.

P. Gopinath felt that in the past India Post has been successful by tying up with partners such as \Vestern Union and should continue to do so in order to meet the objectives as stated by Vijay :Mahajan. 90 Transformation of India Post for Vision 2020

IV. INDIA POST: STRATEGIC ACTION PLAN

23. APPLYING LESSONS FROM INTERNATIONAL AND DOMESTIC EXPERIENCES

U Srinivasa Raghavan} A1ember Operations} Department of Posts, Government of India Simon Bel!, Sector Manager, World Bank

U Srinivasa Raghavan, }.1ember, Department of Posts drew conclusionsfrom the lJarious presentations and learningfrom the same for India Post.

The first thing that emerged is the combination of the four forces that are important to India Post and has been affecting all post offices the world over:

(i) Liberalisation (li) Globalisation

~ii) Digitization-Electronic Alternatives (iv) Customer Expectations

Simon Bel4 stressed that India Post needs to transform and implement one of the operating models based on the international examples. However, whilst it is timefor India Post to move away from being a Government Department the time is not right forprivatization} it should realisticalfy choose a model between the two. The interesting points that came out of the seminar can be once again summarized as:

(i) Urgent need for defining Universal Service Obligation and legalise framework to operationalize the USo. This should also target issues such as to what extent the usa operations be funded by government, private organisations or the creation of a separate fund, etc. (li) Chart out a strategic vision with a clear corporate strategy and do away with imprecise and ambiguous strategies. Create a successful operating model learning from international examples (difficult to operate as a large government model). (iii) Separation of functions of owner, operator and regulator services are important to eradicate the current cont1icts of interest. (iv) Popularise the savings banks accounts system in rural areas where a large number of people continue to remain outside the realm of banking. (v) Improvement in the quality of services in terms of cost, access, delivery and time in rural areas. (vi) Enable technology for strengthening financial and communication services. (vii) Partner with suitable organisations sharing skill bases, knowledge and bring in investments in this sector. (,viii) Form a logistics backbone. (ix) Developing human resource base; build capacity through proper training and skill building of post office employees so that they can handle new lines of business. A large scale communication exercise can also be planned, so that commitment can be built across 5.5 lakh employees who will be able to contribute to the organisation in a more efficient and committed fashion. (x) Create and operationalize the quality standard to leverage and achieve six sigma standards in all operations. (xi) Data mining and other services which could be provided by post offices. v. CONCLUSION

24. CLOSING AnDRESS

(a) Adarsh Kishore) Secretary Expenditure, Ministry 0/ Finance) Government 0/ India Adarsh Kishore in his address to the participants shared afew view points in their own individual capacity.

(i) Indian postal sector's existence of 150 years and legislative framework of 107 years can be viewed either as a burden and unnecessary baggage or as a source of pride. The latter is a more apt view, which can lead the way for transition. (n) It has to be recognised that government behaves in a dual fashion, where on one hand it wants usa to be fulfilled by India Post and on the other hand it talks of reducing the subsidy to India Post drastically. (ill) The legislative and legal framework in India also allows many unauthorised courier services to flourish, without regulation. Therefore the fIrst task should be to rewrite the Post Act, carry out major amendments in the same. The provisions of the Act should give a clear understanding of usa and how the usa needs to be shared between India Post and private courier parties. (iv) A good concrete workable action plan should be prepared to bring about change. There should be not only five year strategy plans but also annual strategy plans of action, which clearly states objectives and targets and fund allocation plan to achieve the same. (v) There has been a substantial erosion of the monopoly and India Post has to prepare to sustain itself in a competitive framework. Therefore there should be a regulator, who is knowledgeable, impartial and plays a referee's role. (vi) It is also important that the services and products are chosen purely from functional and fInancial viability point of view. There can be two lots of activities, fIrstly the usa, where a consensus has to be built on the fact that expenditure due to usa has to be paid by the Government. The second activity will be operated by India Post on a commercial basis and will be the ones which India Post can provide the best and at least cost. It is however defInite that India Post will have to achieve cost effIciency (vii) Employee expectations are important for the success of the Department. It is also important to understand the essence of running a profItable organisation that is providing profitable services vis­ a-vis providing USa. (viii) Market orientation and liberalisation has to be done cautiously. Liberalisation has its own advantages and disadvantages. There is a tremendous amount of support being a government organisation, but some disadvantages like inefficiency and corruption must be eradicated. India Post has the advantage of having a wide network. Its postmen have good inter-personal skills, it is a trusted brand and has a strong clientele and such advantages should be utilised to the greatest extent possible. (ix) The defIcit in the postal sector cannot be removed immediately. However changes in attitude are required and the top management needs to be more dynamic. Not a platitude but a real action plan needs to be started through a process of re-engineering, training, capacity building. Corporatisation into one or many subsidiaries is not the solution but some of the tenets of the corporate world can be accepted to suit the requirements of the Department.

(b) B.K Chaturvedi, Cabinet Secretary) Government 0/ India

"I have always considered the Department of Post as a symbol of the government authority. The Postmaster/Postman is a symbol and is probably the most constructive and representable mark of the government." The presence of postmen in the 6 lakh villages in the country means that the country is maintaining a physical communication network in place. No other department has such an extensive connectivity in rural areas and such knowledge of the rural people as the postal department. Not even 92 Transformation of India Post for Vision 2020 the Department of Health or the Police Department has a network such as the Post as these are not one single entity (fragmented entities) and many of the workers in these departments do not stay in the villages unlike a village post man or a village post master.

India has today one billion people and expectations are changing along with major changes in technology. Requirement of fast delivery of parcels, development of internet and resulting competition from private players are all results of the changing scenario.

Postal department had the Small Savings Scheme, where large resources were mobilised. However, cost cutting, reducing interest rates, and increasing cost of employees has put India Post at a crossroads. This is a time when India Post should go for modernising the system, cutting cost to make services more economical and working out innovative solutions.

With the vast network in rural areas post offices can mohilise huge amount of resources, through instruments like Kisan Vikas Patra, etc. Many of the rural post offices are loss making entities. One of the solutions is to close down loss making post offices, which might not be a feasihle option in India. However, there are of usn The question here is therefore how much of the CSO government is ready to The solution therefore lies not in choosing from the two but in balancing the two. It is important to find solutions like setting up post offices which run for 2 hours, post offices where mobile services are provided, post offices where the school master can be a part time post master. These will also ensure significant cost cutting.

The issue of modernisation is also important. Making India Post an instrument for selling financial instruments like small savings accounts, life insurance instruments, etc might be extremely popular and serve the rural customer hase as well. The Indian population is changing and the middle class is increasing and hence there will be a large volume of people saving. India Post can develop instruments for mobilising such savings and tap the middle class.

India Post can learn from other countries, keeping in mind typical problems of India and implement solutions/ examples from foreign countries.

The solution lies in learning from good things other countries have done and transplanting them to India to the extent it suits us. The best way to compete is. to cut cost and make investment that help achieve this in the long term. down cost will enable the department to raise other resources.

The panacea of all is not corporatisation; corporatisation is the ability to take decision independently on issues such as the usa and providing services in rural areas and ability to work independently on financial grounds. However no government can accept a Department of Posts which will be profitable but will only serve select client base. Transformation of India Post for Vision 2020 93

VI. LIST OF PARTICIPANTS

Chairpersons / Speakers /Panelists

Mr. B. K Chaturvedi Cabinet Sectetary Government of India

Mr. Adarsh l

Dr. Ashok Lahiri Chief Economic Advisor l'finistry of Finance

Mr. Arnitabh Verma Joint Secretary (Banking), Financial Sector ~linistry of Finance

Mr. M. V. Rajasekharan Minister Of State (planning) and Ex-Officio Member Planning Commission

Dt, C. Murali Ktishna Kumat Adviser Planning Commission

,\dditional Sectetary Ministry of Commerce

Secretary. Posts Department of Posts

l\lember Opetations Department of Posts

Member Dc,·eJopment Department of Posts

Deputy Director General Department of Posts

Sectetary, Postal Services Board Department of Posts

Director, UPU Affaits Deutsche POst World Net

Chaitperson NABARD

Head of Department, International Relaaons with La Poste

Program Manager China Post

Dr. Naehiket Mot Executive Director IeICI Bank

Mr. Johannes Petrus Boon Postal Financial Services Specialist ING PostBank

Prof. Shubh,sh Bh.magar Professor

Mr. Rajiv Kumar Chief Economist

Mr. Sanj.y J',lirch.t:,h i Regional VI'

Mr. R, R. Rao Joint J',lanaging Director ICRA

Mr. Amrit Pandumngi Executive Director PricewaterhouseCoopers

Mr. Joydeep Sengupta Partner Mcl

Mr. Adil S Zainulbhai Managing Director-India Md

:>'fr. Vija)' '\fahajan Managing Director BASIX

Mr. Michael Carter Count!)' Director, India World Bank

Senior Postal Policy Specialist World Bank

World

World 94 Transformation of India Post for Visiqn

Name Designation Organization

Other Participants

~..... - Mr. B. Anjaneyulu Associate Vice-President APMAS

~.. Dr. S. Ie Sharma Senior Economist ASSOCHA"f

Mr. Kunal Anand Senior Manager-Pensions Aviva Life Insurance ....-----_.._-- - Mr. Ravi Nichani Senior Manager Citibank i : Dr. Durga Prasad Management Consultant Consultant

Dr. Vikram Rajan Director- Business Development C-Sam 1------­ Mr. Subramanya Kusnur General Manager-Asia Pacific C-SalYj ~ Mr. Ramit '-fitra Senior Executive-Business Development C-Sam

Sanyal Director Depanment of IT

Mohanakumar "lember Personnel Depanment of Posts

Ray Senior Deputy Director General Depanment of Posts

Dasgupta Senior Deputy Director General Department of POStS

Mr. A. K Shanna Deputy Director General Depanment of Posts r--- Mr. S. C. Sarma Chief General Manager Department of Posts

Ms. Rameshwari Handa Deputy Director General Department of POStS

Ms. Anjali Devasher Deputy Director General Depanment of POStS r---- Ms. Manjul. Prasher Deputy Director General Department of Posts

Ms. K Tewari Deputy Director General Department of Posts

Ms. Kaver), Banerjee Deput)' Director General Department of Posts

Divya Malhotra Deputy Director General Department of PoStS

Mr. S. Sarkar Deputy Director General Department of Posts

Mr. P. K Gopinath Deputy Director General Depanment of Posts

Ms. Devika Kumar Deputy Director General Department of Posts

Ms. ReItha Gupta JS & FA Department of Posts

Mr. Raghav La! Chief General Manager Department of Posts

Ms. M. S. Bali General Manager Department of Posts i f--- Mr. P. 1: S. Kumar Deputy Director General Department of Posts

Ms. Manju Pandey Additional General Manager Department of Posts !

Mr. Arvind Varma Deputy General Manager Department of Posts i Mr. 1: Q. Mohammad Deputy General Manager Department of Posts ; I Mr. V. Pati Additional General Manager Department of Posts

Mr. Arnitabh K.ha.rkwal Director Department of Posts i Mr. R K. Kashyap Director Department of Posts

Ms. Smita Kumar Director Department of Posts

Ms. Achla Bhatnagar Director Department of Posts

Ms. Vidushi Charurvedi Director Department of Posts

Ms. Udita Chandra Kumar Director Department of Posts

Mr. S. C. Barmma Director Department of Posts

Mr. Nitaj Kumar Director Depamnent of Posts of India Post for Vision 2020 95

Mr. Subhash Chandra Director Department of Posts

Tshering Director Department of Posts

Director Department of Posts

Ms. Pratibha Nath Director Department of Posts

M:r. P. Sateen Director Department of Posts

! Mr. Prashant Swain Director Department of Posts

i Mr. Harinder Singh Director Department of Posts

I Ms. Indu Gupta Additional Director Department of Posts

Major Genernl Sadashivam Additional GD APS Department of Posts

Mr. IMG Khan Additional Secretary Department of Posts i Mr. S. Samant Chief Postmaster General Department of Posts

Ms. Noorjahen Chief Postmaster Genetal Department of Posts

I Mr. P K. Chatter;i Chief Postmaster General Department of Posts i Chief Postmaster General Department of Posts I

I Mr. T. S. Govindrajan Chief Postmaster General Department of Posts

I Ms. V. T. Sethi Chief Postmaster General Department of Posts

Ms. Meera Datta Chief Postmaster General Department of Posts

Ms. Madhunarayanan Chief Postmaster General Department of Posts

Ms. Radhika Doraiswamy Chief Postmaster Genernl Department of Posts

I Mr. Ashish Kumar Director Department Of Posts

Ms. Noorjehan Chief Postmaster General Department of Posts

Ms. Kalpana Tewari Deputy Director General Department of Posts

Mr. Yasumitra Director Posral Services Department of Posts

Mr. Alok Pande Assistant Director General Department of Posts

Mr. K. K. Sharma Director Department of Posts

Ms. Moutishi Sen Gupta Senior Program Manager DFID

Ms. Meenakshi Nath Entetprise Development Adviser DFID

Mr. Yivek Bharati Adviser, National Policy. Programme & Projects FlCCI

Mr. Tabrez Altmed Senior Assistant Director FICCI

Mr. Lok Prasad Acharya Senior Postal Officer General Post Office, Nepal

Mr. Gokul Patnaik Managing Director Global AgriSystem

Mr. Anuj Bhargava Head of Information Technology HSBC

Mr. Manish Khera loint General Manager laCI Bank Ltd.

Mr. Ashish Ahuja Chief Manager ICla Bank Ltd.

Mr. Ra~b Ranjan Deputy Zonal Manager laa Bank Ltd.

I Mr. Virat Divyakirti Rural and Agriculture Business Group ICICI Lombard

I Mr. Krishnan Srinivasan Manager ICRA

Mr. Pradeep Madhav Executive VICe President IDBI Capital

Dr. Slwuanu Gupta Fellow India Development Foundation

Ms. lndrani Sharma Ma~, Development India Planer Finance 96 Transformation of India Post for Vision 2020

Natne Designation Organization

Rala t Bha t nagar Manager, C orporate servlces ING i I i Mr. Ashutosh Bhondele VP~Public Sector Head-India ING

I ,Joshi Chief Representative ING i

Head ~ Financial Services ITC~IBD "---" Ray Manager ITCTBD

Campaign Coordinator Janaagraha

Associate Director KPMG

Anupam R,ohmMh,n Senior Consultant KPMG

Mr. Rohit 1vlangal Consultant KPMG

Mr. Nitin Gupta Country Manager, South Asia Mastercard International

Ms. Monica Agrawal Director, Acceptance Mastercard International

Ms. Rama Vedashree Business Development Manager Microsoft

Mr. Ani! Varghese Sales Manager J'vficrosoft

Mr. Chandradeep Chahavarty i\ccOunt Manager I

,-'--"--'~-- '--~'~ I Me. Vikas l\rora Manager rMr. Ravi Datanwala Manager Mr. Manish Sharma Public Sector, Solutions Specialist

Mr. Nandu Pradhan Director-Public Sector Microsoft i

Mr. Saurabh Garg Deputy Secreta!)' Ministry of Fmance i Mr. A. B. M. Khorshed Alam Director (posts), Bangladesh i'vfinistl)' of POSts, Bangladesh

""it. A. D. Ramoo General Manager NABARD

Mr. Rakesh Gupta Senior Technical Director National Informatics Centre

Ms. Shefali Dash Senior Technical Director National Informatics Centre

I----~~.--~~.---~. Mr Ravi Kumar Principal Systems Analyst National Informatics Centre

Mr. Raikumar Jha National Creative Head Ogilvy Mr. Rakesh Kaul Senior Consultant PricewaterhouseCoopers I I Mr. Vishwas Vdgirkar Associate Director PricewaterhouseCoopers

Mr. Raja Venkataramanl Principal Consultant Pric"""'terhouseCoopers

Mr. Rajesh Aggarwal Principal Consultant PricewaterhouseCoopers

Ms. Sohini Raychaudhuri Consultant PricewaterhouseCoopers

Ms. Sanika Jain Consultant PricewaterhouseCoopers i

Mr. M.him Bisht Business Development Principal Asset Management. r Mr. K Sukuraman Group Head, Capacity Building Sa~Dhan I Mr. Gaurav Sinha Program Executive Sa~Dhan i Mr. Sriniv.s Chief Marketing Officer SBI Funds Management

Mr. Sandeep K Sharma Branch Head SBl Funds Management

Mr. Aiit Kanitkar i

Mr. Adrian Marti

Ms. Teresa Khanna Program Officer SOC, Embassy of Switzerland

Mr. Ramesh Dharmaji General Manager SIDB1

~.--.--. Mr. Rajesh Dubey Deputy General Manager SIDBI Transformation of India Post for Vision 2020 97

AVP and Zone Head Tata AIG

Regional Advisor for Asia-Pacific Universal Postal Union, Bangkok

Director USAID

Vice President UTI AMC

Business Development Manager Western Union

Regional Operations Manager \\-'estern Union

Regional Vice President-South Asia Region Western Union

Country Director-Northern India Bhutan & ~epal Western Union

Director-Operations-South Asia \X/estern Union

Manager Sales (Enterprise Platforms Pracatice) WIPRO

Lead Sector Specialist World Bank

Financial Specialist World Bank

Ms. Varsha Marathe Financial Specialist rid Bank

Mr. Inderbir Singh D hingra Private Sector Development Specialist World Bank

Adviser, Communications World Bank