FROM BUSINESS WORLD OF 22 MARCH 2006
Reforming the
post office
The 1898 Indian
Post Office Act gives the government a monopoly of carrying letters with some
trivial exceptions; this was the rule in all countries with a state-run postal
service. The cheap, universal letter delivery service was a British invention. It
could only work either with a , or a cross-subsidy from letters which cost less
than the postal charge to those that cost more to deliver. The monopoly was a
way of securing the cross-subsidy.
Once a post
office had covered a country, it got such network economies that no new entrant
could have competed with it even if it had been allowed; so there was no
questioning of government monopoly. In any case, there were always deliverers
of goods, which the government had no interest in carrying. With the coming of
semiconductors in the 1950s, consumer goods began to become small and compact;
they could be delivered in small packages. From them to delivery of packages of
books or documents or reports was but a short step; with it came the
specialization of some goods carriers in carriage of small packages. They
appropriated an ancient name – couriers. By the 1980s, they were beginning to
take a significant share of the business of the post office – chiefly of its
parcel business, but also of its registered and insured letters.
Different
countries reacted to this development in different ways. Some regarded the post
as a public service and financed its losses. Some corporatized or privatized
the postal business; they thus removed the government financial guarantee, but
also permitted the post office to seek business outside its traditional
preserve. Some segmented business. The US requires that a courier must charge
$3 or twice the postal rate for letters, whichever is higher. It does not let
couriers drop letters in addressees’ letter boxes; they have either to ring the
bell and find someone to deliver the letter to, or leave it on the doorstep.
India, as usual,
dilly-dallied. Amendments to the 1898 Act were considered in 1982 and 1986 but
came to nothing. An amendment bill was drafted when Pramod Mahajan was minister
of communications in 2002. Then it was lost in a labyrinth of parliamentary
committees. It has just resurfaced, and has caused consternation.
What has made
news is its proposal to restore the government monopoly of letters weighing
under 500 grams – that is as much as a brick. Kaushik Basu attacked it on BBC
saying that the post office should be made to compete, and told that if it
fails to rise to the challenge, its budget and staff will be cut.
But there are
other things in this bill. Some of them are trivial. For instance, it will
allow the post office to charge lower postage on franked letters than on those
bearing stamps; and it will give it power to go and monitor franking machines
in business customers’ premises to ensure that they are not used to send
personal letters. It will also permit the post office to offer e-enabled
services; for instance, e-mails may be delivered like letters.
The reason why
these petty changes require permission of the august Parliament is that the
post office is a government department. If it is to survive competition, the
least that needs to be done is to give it operational autonomy. This is simply
done; it should be corporatized.
But then there
are provisions that are not trivial. They relate to registration of couriers.
Those who have been cheated by couriers will welcome this; liberals like me
will fear that the government would use powers of registration to restrict
competition, and cynics like me will believe that rogue couriers will bribe
bureaucrats and flourish. And there is also provision for ‘universal service
obligation’ (USO), a misnomer for a cross-subsidy from couriers to the post
office. In telecommunications, the government forced private operators to give
generous cross-subsidies to BSNL. Now it has introduced competitive bidding for
earning the cross-subsidy; but it still goes mainly to BSNL.
USO raises
doubts because a subsidy to rural services coincides with a cross-subsidy to,
and hence discrimination in favour of, the government operator. This
coincidence – this conflict of interest of the government – would be removed if
the post office were privatized.
That would not
appeal to our old-style socialist government. But it has one more option. It
can allow competition in last-mile postal service. Let there be private postal
delivery contractors, who would collect mail from post offices and deliver it
to their clients. Let them bid for delivery to a certain area; let the lowest
bidder get the contract for a year at a time. Let postmen become small
businessmen, and deliver milk and newspapers with the letters.
