Payments Bank will not revive India Post

The government has established the India Post Payments Bank (IPPB) last year in order to revive the post offices. It was thought that the deep reach of the post office especially in the rural areas will provide it an inherent advantage and it will be able to make profit from reaching banking services to these unserved areas. But the IPPB is incurring huge losses.

The IPPB was made to solve the problem of the post office that has arisen because of technical changes. The ability to send documents online has reduced the need to send them though mail which was the rock bed on which the post office earlier stood.

The government tried to convert the post office into a bank instead of pursuing the more lucrative alternative of deliveries of online orders. Many countries have adjusted to this change. The postal system in Canada delivers about two-thirds of all online orders.

The Canadian post offices also provide for collection or dispatch of parcels on drive-through windows so that the customer does not have to park or get out of her car. The post offices are also equipped with fast charging of electric cars. Our experience is similar.

India Post delivered 10 crore parcels last year. This has increased dramatically to 16 crores this year. Yet, this is the tip of the iceberg. The share of post office in the delivery of online orders appears to be small.

I live in a rural area 7 kilometers away from my post office, but the online sellers deliver the packets through their own delivery boys coming instead of using the post office. India Post can earn a huge revenue if it is able to deliver these online orders efficiently.

There is also a need to reconsider the pricing of certain postal services. India Post is incurring a cost of about Rs 25 in delivering a packet containing printed matter while the revenue earned in on the average only Rs 4.

Printed matter has become less relevant today because the youth are able to access the news and other documents on their smartphones. There is a need to remove such subsidies that lead to continuation of printed matter and put a load on the environment.

It is desirable to reduce the use of printed matter. The removal of postal subsidies on printed matter will be a correct step in this direction.

The delivery of online orders is not easy though. The US Post is facing many problems. The postman places a slip in the mailbox that the customer can pick up the packet from the post office. The purchaser has to go to the post office to collect the packet.

It is reported that customers have to face lines as long as one hour in the collection of their packets. Many deliveries are made to wrong addresses. Therefore, it is necessary that India Post encourages its employees to make efficient delivery of online orders otherwise this too will not be successful.

The problem here lies in the motivation of the postal workmen. Their salaries are secure and are not impacted by the quality of the service provided by them. They have no motivation to reach an order quickly to the buyer.

Postal Minister Manoj Sinha has sought to solve this problem in the IPPB by providing that 30 percent of the profits will be distributed as commission to the employees. But this is too far and indirect. We should take lesson from the United Kingdom (UK) in this respect.

The government provides only the basic rent for the establishment of a post office. The postmaster gets a commission on the volume of business. His salary is made of these commissions. Our Government Transport Corporations have instituted similar incentives.

Thus, we see that corporation bus drivers and conductors try to pick up as many customers as possible. India Post does not have such an incentive. The postmaster of a small town told me that only 100 IPPB accounts have been opened. The postmen, he said, undertake this work "when they have the time."

There was pressure, he said, from the senior officers. It is clear that this work is a "burden" on the postal workers. They have no motivation to see its success.

India Post must create a similar direct incentive and pay per-article commissions to the postal workers so that they take interest in the work; and reduce their salaries so that the financial burden on the government is also reduced.

The IPPB is not likely to succeed anyways. It will not be able to face competition from the commercial banks where it is possible to draw cash, deposit cheques of other banks and take loans under one roof.

The services provided by IPPB are limited. One can draw cash but cannot deposit cheques of other banks or take loans. Therefore, a customer needs to open an account in the commercial bank for these services anyways.

The benefit from zero minimum balance in IPPB accounts is small because one has to open an account in the commercial banks anyways. The other supposed benefit of the IPPB is that it can provide services at the doorsteps.

However, inquires on the ground revealed that this is not being practiced because of lack of motivation of the postal workers.

The alleged benefits from the deep reach of the post offices is not materialising either. The youth are using online banking services majorly. I know of employees maintaining their commercial bank accounts in cities far away where they lived many years ago.

They have not bothered to transfer their accounts to a nearby branch. They can operate their accounts remotely quite comfortably. Our people have become very mobile.

The transport system has become so developed with the making of roads and access to two-wheelers that it is easy to reach the mainstream bank in the nearby town.

The government needs to tweak its strategy to revive the India Post. One, it must freeze the salaries of postal workers or even convert them into contractual employee and provide piece-based commissions to them for the booking and delivery of packets.

That will improve the consumer interface with the postal system. The target must be to capture the delivery of online orders. Two, it must revise the price of postal services such as printed postcards and newspapers to recover the full cost.

Three, it must abandon its present efforts to convert IPPB into a Small Finance Bank because the problem of motivation of postal workers and competition from commercial banks will remain unsolved.

(The writer is formerly Professor of Economics at IIM, Bengaluru)