Global e-commerce giant Amazon has initiated a pilot project with India Post, the Indian government-operated postal system, to test its cash-on-delivery model in India.

Amazon is currently testing the pilot on India Post’s SpeedPost network, said to be faster than the E-Express Parcel service, which would help the online giant to reach the deep hinterlands in India.

The move by Amazon is expected to intensify competition in the still-nascent e-commerce industry in India. Right now, Amazon competes with the likes of home-grown majors such as Flipkart.

India Post has more than 150,000 post offices in India, out of which 89% are in rural areas.

India Post earlier announced plans to spend INR100 crore over the next few years for modernizing the department, which also included setting up warehouses for e-commerce packages.

"We are trying to add capabilities like cash on delivery and reverse logistics. Consumers don’t want to make an upfront payment. We are developing software to start the cash-on-delivery service with Amazon," said a senior India Post official, while talking to Economic Times.

The tie-up with Amazon is expected to give a boost to these plans as India Post will considerably benefit from Amazon’s aggressive growth plans in the country.

Cash on delivery accounts for two-thirds of e-commerce transactions in India as per a report, out of which smaller towns command a lion’s share. The retailer is looking to tap into this share.

An Amazon spokesperson commented," We continually look for opportunities that will enable us to reach our customers in the remotest parts of India and offer them a convenient, trustworthy and reliable shopping experience."

Amazon has already replicated this model, albeit on a different scale in the US, when it tied up with US Postal Service for Sunday deliveries.

Meanwhile Amazon’s local rival Flipkart is also considering to utilise the services of postmen to offer cash on delivery.

"We use India Post for delivery of prepaid orders with," a spokesperson said.

"We are currently evaluating the possibility of working on a feasible cash-on-delivery mechanism with them."