The Financial Express, May 17, 2006

By Pradeep S Mehta

Giving the postal department the monopoly to carry all letters weighing less than 300 g won’t help.

The Government of India (GoI) has drafted an amendment to the more than a century old Indian Post Office Act (1898). From the outset, a wide range of experts would agree on the necessity of introducing changes to this anachronistic bill. However, at this point the conformity ends and disputes begin. Surprisingly (or not), the debate in the recent past has been focused primarily on whether the Department of Post (DoP) should have the monopoly to carry all letters weighing less than 300 grammes; second, who ought to bear the burden of financing the Universal Service Obligation (USO); and third, the setting up of a postal regulator.

The GoI’s point of view is rather simplistic: India, as a member of the Universal Postal Union, has an obligation to provide mail services at affordable prices to the whole country, including far-flung rural areas that are commercially unviable. The government is using this as the main plank to argue for monopoly for the DoP in the less than 300 g segment and the setting up of a USO fund. On the surface, this proposal appears to do justice with the DoP. But do courier companies and the DoP compete for the same segment of the market?

The Express Industry Council of India (EICI) argues rightly that, “[c]ourier and express operators do not carry ordinary mails. They are not in competition with DoP for this business but do compete, head-on, for value-added services provided by Speed Post and Express Post.” Common sense suggests that customers who desire express service pay a significantly higher rate than they would do to the Posts, but use the latter for sending ordinary mail. Thus, in the current scenario when there is already segmentation of the market for postal services (ordinary mail vs express), the government should seek to preserve this, rather than create further segmentation.

Moreover, does the government have the ability to utilise these funds properly? A similar USO fund was set up in the telecom sector in 2002-03. However, of the Rs 10,753 crore collected by the GOI since 2002-03, almost two-thirds of it (Rs 7,189 crore) is lying unutilised, and this amount is likely to go up to Rs 25,000 crore in 2010. What is the government doing with all this unspent money, while so many rural areas are still without any telecom facility at all? Can we afford another fiasco?

  • Postal dept and courier cos don’t compete for the same customer
  • As for a USO Fund, will the government be able to utilise the money properly?
  • But a postal regulator to oversee this industry is certainly needed

How will the DoP fund the mail services without curtailing the courier companies’ revenues, and whose services are vital for foreign companies as well as for various government departments?

Inherently, the answer lies in the postal department’s anachronistic management system. The fact is that the DoP already enjoys an advantageous position, i.e. a nationwide network. But it requires a bit of imagination for the DoP to reinvent itself and develop new niches. For example, Deutsche Post concludes that the US post delivers more than twice the average mail volume in Europe due to the payment collection services it renders to other agencies. In India, only governmental companies like BSNL allow the customer such an option. If the DoP is allowed to charge a small commission from private companies to permit citizens to pay their bills at the local post office, it can turn out to be a win-win situation for all parties.

A welcome step: it was recently reported that private cellular operators have struck a deal with the DoP to promote mobile services, especially in rural areas. Other similar avenues are already being explored in the non-mail services and have a huge potential in the growing Indian market. For e.g., insurance and other financial service providers are allowed to sell their products through post offices.

As for a postal regulator, there is an absolute need for it. Such a regulator should also look into the development aspect of the industry, which could include measures the DoP can take to cut losses and make profits.

While the government’s objective to serve rural and remote areas is benign, the strategy to attain this via the proposed amendments is a retrograde measure. We need to look at amendments to the 2006 amendment bill which will uphold the government’s commitment to place India’s economic progress first, rather than opportunistic interests.

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