State-owned carriage only

HIGHLIGHTS OF THE BILL
(Read this section in detail)

• The Indian Post Office (Amendment) Bill, 2006 seeks to amend the Indian Post Office Act, 1898.

• Every service provider, other than the Department of Posts (DoP), has to be registered.

• The Bill defines the term 'letter' as any written or printed communication including documents. The central government retains exclusive privilege of carrying letters weighing up to 300 grams but allows private service providers to carry letters above this weight.

• 
  This page is organised as follows: The highlights of the Bill and the key issues to be considered are listed briefly first; the details of each are presented thereafter. Click here to see the highlights in detail, and here to see the detailed analysis of key issues.
  The Bill sets up a Universal Service Obligation Fund (USO Fund), to which private service providers with at least Rs 25 lakh annual turnover would contribute 10 per cent of their turnover. The government would use the USO Fund to fulfil its obligation of providing affordable postal service to every citizen.

• The Bill establishes an authority to regulate all service providers. It also sets up a Mail Disputes Settlement Tribunal to adjudicate on disputes between a registered service provider and the government or a group of consumers.

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.

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.