No Change At The Post Office

Much of the popular interest in reforming the public sector revolves around airlines and telecommunications. The department of posts, fronted by the post offices round the country, is largely ignored. Within the department, there isn't any great urgency to change and no plan to meet the challenge posed to traditional mail services by e-mail.

In contrast, the postal scene in Europe is in a ferment. The state owned mail services in most European countries enjoy a monopoly. Only letters weighing over 350 grammes, that is accounting for 3 per cent of the total market, is open to private competition. This monopoly has been allowed because the state owned mails have a `universal service obligation'; they have to deliver letters to the most far flung corners. But this is changing. The European Commission is likely to soon allow competition in 27 per cent of the business by 2003. After that date the situation will be studied and the future course of liberalisation decided upon.

 

To be sure there is a lot of opposition to this in Europe. The French remain the main statists whereas the Swedes, for example, have freed up their mail services. The opposition to opening up to private competition is mainly on the ground of the state owned services having to bear the universal service obligation. But a solution to that is also contained in the EU's postal directive for a compensation fund with contributions from newcomers used to meet the cost of maintaining `universal services'.

The EU's internal market commissioner, whose job it is to ensure competition, Frits Bolkestein, observes, "If we do not open up the market further, the world will pass us by." The commission is also under considerable pressure from leading American private mail companies like Federal Express and United Parcel Service not just to open up but also to stop what they call illegal subsidies to the state owned firms.

What is fascinating is the reaction among the latter. Many of them are trying to stand on their own feet. The industry view is that after the opening up, the European mail business will be dominated by four or five major players. Jockeying for these positions are the German, British, Dutch and French posts. Deutsche Post has been the most aggressive in transforming itself in the last ten years. "We have completely reinvented the Post," says its chief Klaus Zumwinkel, by cutting costs, buying synergic companies in other countries and improving internet services.

The internet is seen as both a threat and an opportunity. A lot of traditional mail is being gobbled up by e-mail but a huge parcel business will emerge as consumers buy more and more on the net. Between mid-1997 and mid-1999, Deutsche Post, according to Business Week, paid $4.4 billion to buy into 20 odd companies, the most high profile being a 25 per cent stake in DHL Worldwide Express. Deutsche Post has bought warehouses, started call centres and launched a web site for merchants so that what they sell will be shipped through Deutsche Post.

Predictably, the American companies are accusing Deutsche Post of funding these acquisitions, which will give it a headstart in a free market, out of state subsidies. It is also accusing the Post of subsidising parcel services with monopoly profits made in letters (German postal rates are about twice American rates). Deutsche Post's replies that no money has come from outside the company; cross subsidising within a company is all right.

What is the Indian postal department doing? In 1998-99 (the last year for which detailed figures are available) it had a miserable capital budget of Rs 77 crore, but even this it could not spend, returning 22 per cent of it. The department's civil wing which plans and executes projects, is in a sorry state. Its staff expenses are rising while the cost of works executed is going down from year to year. So questions of serious modernisation do not arise. The department does not even know how much of traffic (physical volume) it handles. For unregistered mail which accounts for most of the volume, the projected figures were one-fifth or one-sixth of enumerated figures garnered form sample surveys. When the CAG's audit pointed this out, the department simply stopped doing the surveys. It does not have any customer-wise market segmentation (how much of business comes from individuals and how much from companies), without which it cannot have a business strategy.

The only silver lining is the growth of revenue from what is called value added services (speed post, business post, etc.) which is rising fast. It reached Rs 225 crore last year (1999-00), growing 60 per cent, on top of a 37 per cent growth in the previous year. Speed post appears to be doing a better job of connecting smaller towns than private couriers but there is no proper business development plan to realise its full potential.

Nearly 90 per cent of post offices are in rural areas. If the functioning of the postal savings bank is streamlined and customers served batter, it can raise far more than the Rs 31,588 crore of savings deposits it held in 1999. Since the rural branches of nationalised banks mainly collect deposits, their job can be done by the post offices at a lower cost and the loss making rural branches closed down. Since the Indian postal services do not have a monopoly status like those in Europe, the postal savings bank can be made into a proper bank which can then invest its resources in government paper and the call money market. (Now the entire balance is a part of general revenues and the department earns a commission on the business it handles.) This can put the department in the black. But the minister is not interested, he only wants to regularise extra-departmental staff.