KEY ISSUES AND ANALYSIS
(Read this section in detail)

• The DoP's monopoly over the sub-300 gram letter segment would restrict the choice of consumers. The restriction applies even to delivery of documents and for premium services such as express delivery, which are currently being provided by private courier companies.

• The cost of contributing to the USO Fund could result in higher cost to the consumer. Also, the Bill does not exempt a service provider from contributing to the Fund even if he is willing to provide service in rural areas.

• Under this Bill, the consumer has no legal recourse against deficiency of service by DoP. This is a change from the current system under which the consumer may approach Consumer Courts.

• The Bill restricts foreign equity in private companies in the postal sector to 49 per cent. However, there are companies currently operating which have a higher percentage of foreign equity.

Context

The Indian Post Office Act, 1898, presently governs the postal sector. Earlier attempts at amending the Act in 1982, 1986 and 2002 were not successful. [2] The draft Indian Post Office (Amendment) Bill, 2006 seeks to regulate the players (including courier and express delivery companies) in the sector, specify the monopoly rights of the Department of Posts (DoP) and provide for a fund to enable DoP meet its obligations of providing universal access to postal services.

Key features

• Modification of Exclusive Privilege

  The Bill defines the term 'letter' as any written or printed communication including documents but excludes parcels and newspapers. It states that the DoP will have the exclusive privilege of collecting and delivering all letters below 300 grams. Letters above 300 grams can be carried by registered private agencies too.

• Registration of Service Providers

  In order to carry or deliver any postal article, the Bill requires every service provider, other than the DoP, to get registered with a registering authority.

  The registration would be granted for a specified period and would be renewable. If a service provider operates within India, it would have to pay a one-time registration fee of Rs 25,000. If it operates both within and outside India, it would have to pay Rs 10 lakh. For renewal of registration, a service provider operating within India would have to pay Rs 10,000 per annum whereas a service provider operating within and beyond India will pay Rs 5 lakh.

• Universal Service Obligation Fund

  Every registered service provider with a turnover of Rs 25 lakh or more is required to deposit 10 per cent of its annual turnover with the registering authority towards a Universal Service Obligation Fund (USO Fund). This fund will be used by DoP to meet its obligation of providing service to all locations in the country. The Central Government would specify the terms and conditions of universal service obligation.

• Authorities for Regulating Mail Services

  The Bill establishes a Mail Regulatory and Development Authority (MRDA), which would make recommendations on matters such as cancellation of registration and promotion of competition. It would also regulate arrangements of revenue sharing between registered service providers and the DoP, protect consumer interest, and ensure compliance of universal service obligation. The three members of the MRDA would be serving or retired civil servants of Additional Secretary or Secretary rank, with a tenure of three years.

  A Postal Services Board would be set up to govern the functioning of DoP. Its powers and functions would be delineated by the Central Government.

  A Mail Disputes Settlement Tribunal (MDST) would adjudicate between the Central or State Government or a registered service provider or a local authority; between the MRDA and a registered service provider; between two or more service providers; and between a service provider and a group of consumers.

  The MDST cannot adjudicate on (a) disputes related to the Competition Act, 2002; (b) complaint of an individual consumer against a registered service provider; and (c) disputes related to services provided by the DoP. An individual consumer's complaint against the services of a registered service provider would be addressed through the Consumer Protection Act, 1986.

• Penalties for Offences

  The Bill seeks to penalise the employees of registered service providers and DoP for offences such as theft, destruction of postal articles, intentionally sending postal articles without paying for the postage, and fraudulently altering Post Office documents. It also levies a fine of up to Rs 1,000 if a service provider violates the DoP's exclusive privilege of carrying letters. If a registered service provider violates any of the provisions of the Act, it can be fined up to Rs 2 lakh.

PART B: KEY ISSUES AND ANALYSIS

The Indian Post Office (Amendment) Bill, 2006 was drafted with the purpose of liberalising the mail industry while ensuring that the Central Government is able to fulfil its obligation of providing universal postal service at affordable prices. We tabulate below a comparison of the provisions of the draft Bill, the lapsed 2002 Bill, the Standing Committee report (of the 2002 Bill) and the original Act.

Table 1: Comparison of the Bill with Existing Law and Earlier Proposals
	Indian Post Office (Amendment) Bill, 2006	Indian Post Office Act, 1898	Indian Post Office (Amendment) Bill, 2002 (Lapsed)	Standing Committee Report Recommendations for the IPO Bill, 2002
Definitions	“Letter” means any written communication, or communication produced by mechanical, electronic or other means…documents… but does not include newspapers and parcels.	Not defined	“Letter” means any written communication… includes letter-card, post-card and envelope but does not include newspapers and parcels.	No recommendation
	“Person” means an individual who is a citizen of India… company in which not less than 51 per cent of the paid up share capital is held by the citizens of India.	Not defined	Not defined	No recommendation
	“Postal article” includes… every article or thing transmissible by post or by any person or body authorised to carry such article under the provisions of the Act.	“Postal article” includes… every article or thing transmissible by post.	Same as 2006 Bill	No recommendation
Exclusive Privilege	Allows other service providers to collect and deliver letters above 300 grams.	The Central Government has exclusive privilege of conveying letters.	The Central Government has exclusive privilege of conveying letters, except when no hiring or profit is involved.	No recommendation
Universal Service Obligation Fund	Every registered service provider with annual turnover of Rs 25 lakh or over has to deposit 10 per cent of its annual turnover with the registering authority for the USO Fund.	No provision	No provision	No recommendation
Registration	No person can carry or deliver any postal article unless he is registered as a service provider with a registering authority to be decided by the Government.	No provision	The Central Government to make rules for granting registration to any party and set the terms on which a registered body can perform services that were carried out by the DoP.	The Central Government should retain exclusive privilege in letter category in public interest. So registration should be given only for carrying postal articles excluding letters.
	Registration fee for service providers operating within India is Rs 25,000 and for those operating both within and outside India is Rs 10 lakh. The renewal fee is Rs 10,000 and Rs 5 lakh respectively.	No provision	The fee for granting and renewing registration is Rs 50,000 per annum.	A fee of Rs 10,000 should be charged if a registered body operates within one state of India; in other cases it should be Rs 50,000.
Liability of DoP	The services provided by the DoP are exempted from liability under any law (including the Consumer Protection Act, 1986).	The Government would not incur any liability in case of loss, delay or damage of a postal article.	The services provided by the DoP are exempted from liability under the Consumer Protection Act, 1986.	The DoP should not be exempted from the Consumer Protection Act, 1986 or similar laws where they are performing similar duties as private agencies.
Source: Respective Bills and Standing Committee Report; PRS

Universal Service Obligation

The DoP is required to provide access to postal service to all locations within the country on account of its affiliation to Universal Postal Union. [3] The draft Bill seeks to compensate DoP for this obligation by providing it with two distinct privileges. First, the DoP will have a monopoly on letters below 300 grams. Second, a USO Fund will be created to subsidize the DoP. Issues relating to these privileges are discussed below.

• Promote or restrict competition

  The Indian Post Office Act, 1898, gives the exclusive privilege of carrying and delivering letters to the postal department. However, the Act does not define the word 'letter' leaving it open to interpretation. Private courier companies have been conveying various types of written and printed communications without calling them letters. [4]

  The Bill allows the postal department to retain the exclusive privilege of carrying and delivering letters up to 300 grams and defines the term 'letter' to mean all written and printed communication including documents. The postal department's monopoly includes express mail services. Given that nearly half the business of private service providers is in the below 300 grams segment, [5] it could result in loss of business as well as loss of employment. [6] This could be significant because the private courier industry is already established in India with around 2,500 operators [7] and an estimated revenue of Rs 4,000 crore. [8]

  Table 2: Postal Monopoly in Other Countries
  Country	Status of Postal Monopoly
  USA	US Postal Service has monopoly on letters up to 31.8 kg. However, there are exceptions. Private carriage of letters is permitted if the amount paid is the higher of $3 or twice the applicable postage.
  United Kingdom	Postal service operators have to get a licence from the regulator (Postcomm) for items below the threshold of 350 gm and £1. Above 350 gm/£1, the market is deregulated and fully open to competition.
  The Netherlands	TPG Post has exclusive right to deliver letters up to 50 grams and postage of not more than 2.5 times the basic tariff for a 20 gm letter. It excludes direct mail and there is no monopoly on parcels of any weight. It plans to liberalize fully by 2007.
  Germany	Deutsche Post AG has a monopoly on letter items up to 50 gm and 2.5 times the price of a 20 gm letter and direct mail items up to 50 gm. Full liberalization is scheduled for 1 January 2008.
  Australia	Australia Post has exclusive right to carry letters weighing up to 250 grams. It is subject to a number of exceptions such as carrying letters for a charge that is at least 4 times the rate of postage, catalogues, leaflets, and letters in the course of a document exchange.
  New Zealand	New Zealand Post does not have a monopoly on standard letters. Anyone can process and deliver mail, at any cost, as long as they register as a postal operator with the Ministry of Economic Development.
  Source: Respective country’s official website of the postal sector; Status and Structures of Postal Administrations - June 2006, Universal Postal Union.

  

  The DoP has cited international examples to strengthen its case for retaining exclusive privilege. [9] While most countries allow the official postal department to reserve certain segments of the postal business, the international trend is toward opening up the postal sector. For example, the European Union has made it mandatory for its members to open up the postal sector by 2009. [10] Japan plans to completely privatize Japan Post, a state owned entity, by 2007. [11] However, Argentina's experiment of privatising postal services in 1997 failed, and it was renationalised in 2003.

  Table 2 illustrates that many countries employ a combination of weight restriction and tariff. That is, private operators can operate as long as they charge a minimum specified price or the postal article is of a minimum specified weight. Combining a price multiple option with minimum weight monopoly would allow the private service providers as well as the postal department to operate on a level playing field without limiting the choice for consumers.

• Universal Service obligation Fund

  In order to recover the losses incurred by the DoP (in 2004-05 DoP had a deficit of Rs 1,382 crore [12]) on account of its universal service obligation, every private service provider with an annual turnover of Rs 25 lakh or more is required to give 10 per cent of its annual turnover to a Universal Service Obligation Fund (USO Fund). The cost of such a provision could be passed on to the consumer. Also, it could hinder the growth of the private service providers and lead to cases where companies could use accounting practices to show a lower than Rs 25 lakh annual turnover. For example, a growing company could split into several smaller companies in order to stay below the Rs 25 lakh turnover level.

  In order to finance universal service obligations in the postal sector, the European Commission allows its member states to reserve certain segments for the universal service providers. For example, in U.K, a segment of the postal sector is reserved for those operators who provide universal service within the national boundary. But any operator willing to provide universal service is allowed to operate in the reserved segment. The EC also has a provision for a compensation fund for providers of universal service, [13] which has only been implemented in Italy. [14]

  The Bill does not exempt a private service provider from such a fee even if it is willing to provide service to the rural sector. Also, it is not clear whether a private service provider can avail of the USO Fund if it is willing to provide service in the rural sector. The telecom sector differs in this respect. The USO Fund is available for every eligible operator who is willing to provide universal service. [15] Also, whereas in the telecom sector, all service providers (government companies such as BSNL and MTNL) are required to contribute to the Telecom USO Fund, in the postal sector the Bill proposes to exempt the DoP from contributing to the Postal USO Fund.

• Lack of Liability of DoP

  The Bill states that the DoP cannot be held liable for lapses in services either by the Mail Disputes Settlement Tribunal or by any law in force. This is in contradiction to the Consumer Protection Act, 1986, (CPA, 1986) which states that the Act would apply to all goods and services unless the Central Government makes an exemption by notification. [16] Such notification has not been issued with regard to postal services and certain court judgements have ruled in favour of the consumer in cases where an individual consumer has filed a case against the DoP for not providing the promised service. [17]

  If the DoP is not liable under the CPA, 1986, it is implied that the consumer (who is deprived of the choice of using private services to send letters less than 300 grams) is denied any mechanism to seek redressal if the DoP does not perform as promised. However, the consumer can seek redressal against private service providers under the CPA, 1986. There could be a case for bringing the services of the DoP too under the purview of CPA, 1986. Indeed, the Standing Committee Report on the 2002 version of the Bill recommended that DoP should be made liable under the CPA, 1986. [see Table 1]

• Restriction of Foreign Investment

  The Bill defines a 'person' as a citizen of India and a company in which at least 51 per cent paid up share capital is held by citizens of India. The Bill also states that a person has to register as a service provider in order to carry and deliver any postal article. Presently, Foreign Direct Investment (FDI) up to 100 per cent is permitted in courier services (excluding distribution of letters). [18] There are companies in the sector with more than 49 per cent of foreign equity. The proposed provision will necessitate restructuring of such companies to bring the foreign ownership to below 49 per cent. In contrast, the FDI limit for the telecom sector has recently been raised to 74 per cent from 49 per cent. [19]

• Regulatory Structure

  There are two different authorities governing the postal sector. One is the registering authority and the other is a regulatory authority.

• Registration

  Registration is not an automatic process under the Bill. It requires the approval of the registering authority. It is not clear whether this process is 'registration' or 'licensing'.

• Regulation

  All three members of the MRDA are current or former civil servants. There could be conflict of interest because the DoP is in direct competition with private service providers. Also, keeping in view the technical, legal and financial knowledge that would be required to formulate policies to regulate the postal sector, there could be a case for appointing independent experts in the MRDA. ⊕

Kaushiki Sanyal
26 Aug 2006

Kaushiki Sanyal is a researcher with Parliamentary Research Service, a unit of the Center for Policy Research in New Delhi. PRS is an independent initiative to make the process of law-making in India more transparent, better informed and participatory.

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Notes

1. The draft of the Proposed Indian Post Office (Amendment) Bill, 2006 was posted on the website of the DoP (http://www.indiapost.gov.in/). The DoP invited comments from the general public. The last date of sending the comments was May 10, 2006. The comments had to be sent to the Director General, Department of Post.

2. 1982 and 2002: The Bills lapsed on the dissolution of the Lok Sabha. 1986: The Bill, passed by both Houses of Parliament, was returned by the President to the Rajya Sabha for reconsideration. The Bill was later withdrawn by the government.

3. Frequently Asked Questions on Draft Proposal on Indian Post Office (Amendment) Bill, 2006 (see http://www.indiapost.gov.in/FAQ2006.pdf).

4. Kaushik Basu, "How not to protect the state sector," BBC News, February 28, 2006 (see http://news.bbc.co.uk/1/hi/world/south_asia/4742608.stm).

5. Economic Times, April 23, 2006 (see http://economictimes.indiatimes.com/articleshow/1500399.cms).

6. According to a survey done by FICCI in 2004-05, the private courier industry employs around 250,000 people (see http://www.ficci.com/surveys/service-report.pdf).

7. Position Paper on Indian Post Office (Amendment) Bill, 2006, Express Industry Council of India (http://www.eiciindia.org/frontsite/Position%20Paper%20(dated%20210206).pdf).

8. Refer Note 7.

9. Refer Note 3.

10. Directive 2002/39/EC of the European Council provides for a time-table for opening the letter market to competition (see http://www.industrie.gouv.fr/poste/textes/2002anglais.pdf).

11. Conference on Development Models, Organized by the Universal Postal Union on April 28, 2006 (see http://www.upu.int/news_centre/2006/en/2006-04-28_conference.html).

12. Annual Report 2005-2006, Department of Posts, Ministry of Communications and Information Technology.

13. Directive 97/67/EC of the European Council (see http://www.legaltext.ee/text/en/T61316.htm).

14. PostEurop's Position Paper on the WIK Study on "The Evolution of the Regulatory Model for European Postal Services," March 22, 2006 (see http://www.posteurop.org/newspdf/WIKEN.pdf).

15. The Indian Telegraph (Amendment) Act, 2003 and Indian Telegraph (Amendment) Rules, 2004.

16. Clause 1(4) of the Consumer Protection Act, 1986.

17. National Consumer Disputes Redressal Commission - First Appeal No. 129 of 1995 decided on September 27, 2001.

18. Manual on Foreign Direct Investment in India - Policy and Procedures, May 2003, Ministry of Commerce and Industry, Government of India (see http://dipp.nic.in/manual/manual_0403.pdf).

19. Enhancement of the Foreign Direct Investment ceiling from 49 per cent to 74 per cent in the Telecom sector,- Press Note No. 5 (2005 Series), Ministry of Commerce and Industry, Government of India (see http://www.dot.gov.in/ip/fdi2005.pdf).

Comments (5)

• Posted by Muralidhar Rao,

  The reported move of the Union government to amend the Indian Post Office Act to bar courier companies from services pertaining to letters and packets weighing less than 300 gms, in order to protect the ailing postal sector, is dismaying to say the least.

  The Indian postal system is doing an excellent job. It has of recent come up with many innovative schemes to increase its revenue and sustain its operations. Whatever, the rural operations can never be cost-effective, and there is no harm in the government providing necessary budgetary support to sustain this crucial role. In fact, these are the kind of roles that the government needs to play, as well as confine itself, to. Instead of thinking along these lines, when certain sections in the government start turning the clock back to the old monopoly ways, it is not just retrograde, but totally alarming.

  The dependence of the economy today on the efficient services by the private sector players is epitomised by the engaging of their services even by the IRCTC (Indian Railway Catering and Tourism Corporation Ltd), and public sector banks, in preference to the government-owned SPEEDPOST. Returning to the monopoly era will lead to a total collapse of the many dependent services, which the country just cannot afford any longer.

  As such, not only should the move be curbed right away, but even the babu's who came up with the proposal should be weeded out, so that the message goes right across and no one else tries such mis-adventurism ever again.

• Posted by sahadev kunapuli,

  The govt move will be welcomed by one and all who have suffering at the hands of the courier companies. Woe betide the citizen who locks his house and goes out for a few minutes. The courier comes unannounced from sunrise to sunset, without any pattern, goes back without informing neighbours, watchman etc. Letters once taken back by the courier as 'door locked' etc. can never be traced again. As a long sufferer at the hands of the courier companies, I wholeheartedly welcome the government's move. The bill will teach the courier companies the basic rules of customer service

• Posted by Gaurav Singhal,

  First of all, lot many thanks to the author for such a well researched article. I am associated with the courier business and have been following the news in various forms of media but none gave such a detailed in-depth information and analysis.

  Communication, like transport and power, is one of the most important necessities for economic development. Government's utmost priority, in PM's words, is infrastructure development. It takes no effort of intellect to recognize that such a move to restrict below 300 gram 'letters' will kill a potent infrastructure for the growth of economy, industry, jobs and hence well being of people of country. Even comparing with other nations, there's hardly any country where there is such a BLANKET protection to DoP.

  And as far as we courier wallas are concerned, we practically are not much bothered with this as we'll make every 'letter' a 'parcel' by keeping an object in it, be it a one rupee pencil, a rubber, a centerfresh or even a stone. Then it wont remain a mere 'Letter'.

• Posted by Vidyut Kaji PRO, Maharashtra Courier Association,

  With regards to the said amendments please note that as of now it is proposed that couriers can deliver less then 150 grams at five times the ordinary post rate or 2 and 1/2 times of speed post rate if it's urgent mail. The rest of the proposed amendments remain the same.

  Now i want to put across some of points from couriers and consumers' points of views as follows.

  1. Couriers are providing services at much more economical rates then ordinary postal rates. Why should as consumers people pay more and go compulsorily to post? What about their right as consumer to avail services of couriers or post or both? Isn't this a violation of MRTP law? Is the government not hell-bent on creating a monopoly for its own department?

  2. Why does the post need to exempt itself from consumer protection act? Couriers are accountable and responsible for every single document; we have invested heavily in technology. The post office has done nothing like this.

  3. Why does the post go into so many other businesses and not concentrate on their main and core activity of collecting and distribution of mail? 60% of the post offices are manned by just one person, who sells stamps, distributes mail, offers banking and other services in one pincode. Out of total 5.5 lakh employees how many are actually involved in distribution and collection of mail?

  Now it is up to the government to decide the fate of couriers and may decide to go ahead with amendments or even decide to absorb 10 lakh employees of small and medium and large couriers in postal dept, as an alternative to the unemployment of this group.

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