India Post to lose its monopoly; Govt. forces courier cos to charge double rates

NEW DELHI: A planned overhaul of a 113-year-old postal law proposes to end government monopoly completely in the next decade and a half, but, ironically, sets the clock back for courier companies, which are governed by a different policy at present. The draft Post Office Bill 2011 aims to open the letter mail segment to the private sector in 15 years by withdrawing all exclusive rights to India Post and removing all pricing curbs on private courier companies. The Department of Posts has sent the draft bill for cabinet approval to replace the archaic Indian Post Office Act 1898. The amendment will also provide greater legitimacy to the courier industry.

 
"Considering the role of couriers in the present economy, opening up the letter mail sector to them will not only accord legitimacy to the private operators but also would be recognition of market reality," said an official in the department privy to the cabinet note. Courier companies are not celebrating, though. They say the transition regime proposed is too harsh and could end up killing the over Rs 7,000-crore domestic industry that engages nearly one million workers and pays Rs 1,200 crore in service tax.

 
In the run-up to the complete deregulation , the draft bill has proposed to open the express mail segment (EMS) with a "reserve area" of 50 gm for all articles at a price multiple of twice the government EMS rate. That is, a courier firm will have to charge at least Rs 50 for a package weighing up to 50 g, which is twice the Rs 25 charged by India Post for its Speed Post service for a similar package. At present, couriers are allowed in the EMS segment without any restriction or price, making the market fiercely competitive. The reserve area regulation will give India Post time to prepare for a more competitive regime.

"The proposal to have a reserve area for EMS is unfair and will lead to anti-competitive behavior by the postal department," said Vijay Kumar, chief operating officer, Express Industry Council of India . It could lead to the extinction of the courier industry, he said. Introduced in 1986, Speed Post is the only EMS service provided by India Post. The department has strongly defended the proposal to impose a reserve area by citing international examples. Globally, postal deregulation has been in phases and exclusive rights for state-run postal business still exist in many countries. In India, the courier industry has run ahead of the postal laws because it was allowed under the foreign direct investment regime, which allows 100% overseas investment in the business. International courier companies, such as DHL, TNT, FedEx and UPS, secured FIPB approval under the 100% FDI route.

 
The bill will now recognize them under the postal law, but the proposed transition turns the clock back somewhat by imposing restrictions that did not exist earlier. "Over 60% of the business for small- and medium-sized courier business in India is dependent on document delivery, which is typically within the 50 gm weight segment," said RK Saboo, deputy managing director, First Fight Couriers. The proposal was retrograde and would force small courier firms to close down, he said.

 
The private industry is also not enthused by the entry in the normal mail business, or letter mail segment , where the draft bill has fixed a reserve area of Rs 150 gm for all registered couriers at a price multiple of Rs 2 times the postage of letter mail. The industry says India Post service is highly subsidized, which industry says will make it difficult for it to compete. The bill, which is likely to be introduced in the forthcoming monsoon session of Parliament, has also proposed to simplify registration and licensing of couriers without charging any fees. Most large domestic courier companies in the country like DTDC, First Flight and Skypak are all registered with the Registrar of Companies

Source: Economic Times 9^th July, 2011