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Why has India Post turned into the biggest loss-making PSU?

Chitranjan Kumar     April 22, 2019

India Post, which was once the lifeline of the Indian postal network, is in a bad shape and losing ground to the younger breed of private ventures as letters, telegrams and parcels have given way to phone calls, emails and courier companies.

Over the years, salaries kept on climbing due to implementation of pay panel awards, while revenue from traditional postal services has gone down due to higher product prices as well as the availability of cheaper substitution to traditional postal services.

Why tagged biggest 'loss-making' PSU

In the past three fiscals, the revenue deficit of the Department of Posts, which comes under the Ministry of Communications, has ballooned nearly 150 per cent to Rs 15,000 crore in FY19 from Rs 6,007 crore in FY16, according to The Financial Express. In contrast, state-owned telecom company BSNL made a loss of Rs 7,992 crore in FY18 while Air India reported a net loss of Rs 5,337 crore in FY18.

High pay-and-allowance costs: In 2018-19, India Post's pay and allowances cost increased to Rs 16,620 crore (revised estimate), against revenue of Rs 18,000 crore, which accounts over 90 per cent of its annual revenue, the daily reported. If you factor in pension payouts to the tune of another Rs 9,782 crore, the employee cost itself added up to Rs 26,400 crore in the last fiscal, nearly 50 per cent more than the total receipts.

According to the PSU, its expenditure on salary and allowances will be close to Rs 17,451 crore while pension outgo is expected to be around Rs 10,271 crore in FY20 against projected revenue of Rs 19,203 crore. So the revenue-deficit gap is only set to widen further in the next fiscal.

Mismatch between product-service and price charged: India Post spends on an average Rs 12.15 on each postcard but realises only 50 paise or 4 per cent of the cost. Similarly, the average parcel service cost is Rs 89.23, but recovery is only half of that. The under-recoveries are also pretty high for services such as Book-Post, Speed Post, registration, etc. Furthermore, revenues have taken a hit from dropping volumes as letters, telegrams and parcels have given way to phone calls, emails and courier companies.

Mismanagement of manpower: The company has a massive 4.33 lakh workforce and 1.56 lakh-strong post office network. The under-utilisation of workforce and infrastructure led to a loss for the company. The company should focus on diversifying the business into more value-added services by leveraging its huge workforce and postal network.

Lack of diversification of business: The state-owned entity, which runs the world's largest postal network along with popular savings schemes, a payments bank and, more recently, even an e-commerce portal, has been struggling to diversify in a big way into e-commerce and other value-added services. In the past few years, the body has already diversified into new areas - think setting up Post Shoppes to peddle a diverse range consumer product in post offices, selling financial products like a sovereign gold bond, mutual fund and insurance, offering passport services and selling railway tickets.

But these initiatives generated only Rs 844 crore in 2018. The bulk of its revenue still comes from the National Savings Schemes and Saving Certificates. This had contributed 60 per cent of its revenue of Rs 11,511 crore in FY17.

Also Read: India Post losses touch Rs 15,000 crore in FY19; replaces Air India, BSNL as biggest loss-making PSU

Also Read: Naresh Goyal's firm had Rs 260 crore cash when financial crunch hit Jet Airways

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