Posting a profit, for a change

Postal rates have seen steep hikes in the past few budgets. Will this year be any different? To many, this could seem an inane issue.
After all, who uses snail mail when we have e-mail, telephony and competitively-priced courier services to take care of our communication needs? However, India is not yet a particularly tech-savvy country, if statistics be any indication.
In ‘01-02, the total mail traffic handled by post was, hold your breath, 1,103.7 crore units, that includes registered and unregistered postal items. On a per capita basis, that works out to 11 per annum.
The postal department has been under the scanner for a long time for the losses it has been totting up. One reaction has been to hike user charges steeply. This has led to a fall in traffic over the years and ‘01-02 was no different in this respect. Mail traffic was down sharply by 22% over the previous year but surprisingly, total revenues were up 12% to Rs 3,697 crore in ‘01-02 and its deficit was down by 10% over the previous year. This is just the kind of news the FM wants to hear.
How has the postal department done this? Its strategy reads just like the turnaround strategy of a corporate in trouble: review prices of products keeping profitability in mind, focus on premium segments and keep costs under tight control.
By increasing rates on postal items across the board, it has brought down the level of subsidies on each individual product. Volumes may have dropped sharply but they were unviable volumes in any case, so the decline has not really hit the bottom line.
Prices of inland letters and envelopes (upto 20gms) have increased 25% to Rs 2.50 and Rs 5 respectively in the ‘02-03 Budget. Postcard rates were doubled in the ‘01-02 Budget to 50 paise.
However, price hikes were just one part of the strategy. Its focus on premium products like speed post, business post and express post has paid off. Sales of premium products increased 40% to Rs 396 crore in ‘01-02 and were contributing to 10.7% of revenues, up from 8.5% in the previous year. Speed post is a profitable product that accounts for one-half of premium product sales.
Despite the sharp drop in mail traffic in volume terms, the revenue from postage (excluding stamps) has increased 24.6%. And all of it is not from premium business as revenues have grown by 13% even after excluding premium business income. At the expenditure level, the department has limited the increase in expenditure at 5.4%. The net impact has been that the postal department has managed to reduce its deficit by 9% in ‘01-02 to Rs 1,412 crore. The deficit figure between ‘99-01 was stubbornly hovering around Rs 1,600 crore.
With the deficit under attack, there could be a case for a more benevolent approach towards rate hikes in the current year. But an argument for rate hikes could be made on the ground that with mail traffic declining, unless rates are increased further, the next year may see a slippage of revenues. Moreover, existing rates are still lower than the cost of providing the service. The government will have to put together a judicious mix of rate hikes so that there is potential for revenue growth and lowering of the deficit further.