Economic Impact of Poor Addresses in India: $10–14 Billion a Year

We estimate that poor addresses cost India $10–14B annually, ~0.5% of the GDP.A larger version of this article originally appeared in Massachusetts Institute of Technology’s (MITs) Emerging World Blog.Out of seven billion inhabitants on Earth, approximately four billion [1] do not have proper addresses that allow their houses, properties or businesses to be located on a map with reasonable precision..It reduces availability of amenities such as creation of bank accounts and delivery of goods and services (e.g., e-commerce) and delays emergency services such as fire brigades and ambulances.ECONOMIC IMPACT ON INDUSTRYCASE STUDY 1: LOGISTICS AND TRANSPORTATIONThe inability to locate an address within a reasonable accuracy, as demonstrated in the previous example, hampers a transporter’s ability to deliver shipments on time..In the “last mile operation”, the merchandize goes to the delivery center from where it is delivered to the shopper’s house..Figure 3 illustrates this process.Figure 3: The “last mile cost” in India is ~30% of the total cost of deliveryIn western countries, structured addresses lead to a relatively accurate geocoding and consequently the last mile cost is about 10–12% of the total cost [5]..In India, the same cost is ~30% of the total cost of delivery; notwithstanding India’s low cost of labor..In this delivery center productivity can vary widely as optimal route planning becomes complex, as depicted by two delivery bikers’ routesIf the addresses, on the other hand, can be disambiguated down to a household level, then each individual locality can have a small delivery center..We provide the case of Delhivery, one of India’s leading logistics providers for e-commerce companies.At Delhivery, a switch from a pincode based to a locality based sorting has improved the productivity of the last mile operation by 40–60%, depending on the type/complexity of the addresses and size/shape of the locality.Table 1: An address-based sorting can result in a 40–60% better productivityThis high last-mile cost disproportionately affects a company’s bottom-line..In a simplistic analysis in Table 2, we demonstrate that a better geocoding which reduces the last-mile cost by 40%, well within the reach of current technology, can improve the profitability of an e-commerce company.Table 2: Illustration: An improvement in the last mile cost can swing the profitability of an e-commerce businessEven for a small industry in India, such as e-commerce delivery, which is estimated to be a 5,000 Crore (~$775M) business annually (as of 2017), the annual cost savings from a better addressing scheme is about 650 crore (~$100M).For the Logistics and transportation industry, the same framework can be used for different types of goods and services transportations..Even in case of inter-city transport, it is both the first mile (pickup from a client or a distribution center, for example) or the last mile (delivery to a house or business) deliveries that are impacted significantly by the inability to resolve an address.CASE STUDY 2: LOAN AND FINANCIAL SERVICESIndia is a credit-deprived country where 642 million people, a staggering 53%, are excluded from formal financial products such as loans, insurance and other forms of credits and financial services..These documents (which are mostly paper documents) are then scanned and transcoded to be saved in a database using an Optical Character Recognition (OCR), from which it is compared against the information provided by the borrower on the loan application.This process works well for about 60–70% of borrowers, especially in large cities. From our survey with leading firms, we estimate that about ~70% of the documents are considered a “match” and go to the next step for loan processing, e.g, loan eligibility analysis, approval of loans etc., albeit with only a certain percentage of applicants being eligible for loan.However for the ~30% of the applications, the address provided by the applicant in the application does not match the documents. To understand why, consider the following addresses for the same house, in Figure 6.Figure 6: Same address written in multiple formats in different documentsReplace with: For the same address: a) House number is written as “TH-146B”, “146”, “Unit 146”. b) The community has been described as “Purva Parkridge” and “Purva Park Ridge”, and also abbreviated as “PPR”. c) The road name is spelled in two ways as “Goshala Road” and “Ghosala Road” and omitted in one completely. d) The locality is described as “Garuda Char Palya” and “Garuda Charpalya”.In other words, just four different sources of official address verification documents can produce over 50 combinations..This affects both the borrower, who could be in urgent need of money; and the lender, who has to bear the loss of interest he could have earned until the loan is finally processed and the cost of additional verifications.Table 3: Bad addresses delay verification and approval resulting in the loss of interest to moneylendersAlso, the place of dwelling or the business being a key factor in the risk-assessment process of a loan, the inability to disambiguate it shows up in the risk models, raising the rate and hence, the overall cost of the loan.PAN-INDIA ECONOMIC IMPACTWe conducted similar analysis for the top three industries- Logistics, Manufacturing (including consumer goods) and Emergency Services to derive a cost-estimate for India..Using this approach, our estimate indicate that poor addresses cost India $10–14B annually, ~0.5% of the GDP; see Table 4.Table 4: The economic cost of bad addresses in IndiaFurther note that the numbers presented in Table 4 capture the cost of bad addresses, but do not include additional benefits of having better addresses like rising productivity and income gains, which lead to further growth of businesses and GDP etc.CONCLUSIONEasily discoverable addresses are important for rapidly growing economies like India.. 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