The government has proposed an amendment to the Postal Act that would bar the private sector from carrying articles below 500 gm. The move is regressive, has no rationale, is unimplementable and will not prevent losses in the DoP (department of posts). It will result in unnecessary policing, create huge deadweight losses on society and make the DoP a parasitic regulatory body. By imposing huge communication difficulties, it will adversely affect the efficiency of investments which, thanks to the increasing competitiveness of the communication sectors, has been growing.
Is monopoly the solution to DoP? When it had monopoly, its losses were more than today. The argument was that the low prices on letters, especially post-cards, meant losses and all inefficiencies of the DoP were reported as subsidies.
Today, local private courier services, at Rs 5 a letter, reveal those assumptions as lies. The private sector’s admission has allowed the courier industry to zoom to unimaginable levels. So competitive and reliable are the couriers that most organisations use couriers even for letters! The couriers virtually created this market. Another market they created is the local courier market for within day and overnight delivery, even when the private sector does not have the economies of combining delivery and pick up.
Even then, why is the private sector so competitive? Work norms are absurd in post offices. A DoP postal clerk stamps and accepts one courier packet in the same period that private sector boys can do more than three. There is competitive determination of wages in the private sector, while wage costs are absurdly high in the DoP. The huge network and infrastructure is used for a few hours, while couriers work longer hours.
The draconian legislation is being proposed on the ground that the DoP is forced to cover the spread out areas and so makes losses. But these ‘losses’ could have been covered with the money DoP could have made through better quality, new services and exploiting the network economies. It could have proposed a ‘USO’ charge of, say, 50p a packet on private couriers for the public carrier.
Government revenue through service tax on couriers is over Rs 600 crore (BE 2004-05). It is one of the fastest rising revenue items (it was Rs 60 crore in 2002-03). A net generation of value added of almost Rs 6,000 crore is involved, based on official collections. More realistically, Rs 7,500 crore may be involved. It means over one million units of employment in this sector at an assumed wage rate of Rs 4,000 a month, with two-thirds of the value added arising on account of wages and salaries.
Does the government want to kill these poor and lower middle-class people simply because they are not unionised, arrogant government employees? The government would be unable to realise even a fraction of the Rs 7,500 crore despite its monopoly, since the market would be destroyed by the DoP. Nay, it would not even collect more revenue than the service tax it collects today!
What should the DoP be doing? First, it must lower the price of ‘Speed Post’ for the bulk of the segment and have a higher priced segment in areas where couriers don’t operate to maximise revenue. The growth in volume, with cost remaining the same, would work.
Second, it should incentivise its staff to bring in more demand and have punitive fines for losing letters. There should be productivity linkage of wage payments and increased use of contract labour in non-core and easily definable jobs. Better design of the work is necessary. Compu-terisation to allow better and low-cost record-keeping, instead of the multiple and wasteful entries at present, is needed. And more hours of operation.
Third, it must turn to poly-business, through new services such as cash transfer to remote areas, bankable cheque coupons in money transfer, better selling of fax services and e-mail in combination with s-mail, parcel services, ATM operations and active scouting for mail-order business. It can develop address lists for sale to marketing firms for promos. There is a world of opportunity out there, given its large network. Most important, it has to understand pricing and customer needs in a situation of shared costs and competition. Free the DoP to act commercially and fire its top management, who cannot think beyond rents through monopolies.