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The Department of Post is in the process of drafting a new regulation for the postal sector.

This is a necessity since the present act regulating the sector – the Indian Post Office Act 1898 – is outdated.

In fact, the earlier attempt to make an amendment to the Act of 1898 received significant criticism from the courier companies, various ministries and industry associations.

Private companies opposed various provisions of the amendment including use of a weight and price multiple to define a reserved area for India Post in letter and express mail services segments, asking larger companies to contribute to USO funding, proposing a roll-back of the FDI from 100% to 49% and suggesting a regulator for this sector.

While many of these issues are likely to be better addressed in the new regulation the need and the role of the regulator is still a bone of contention.

Over the past few months, ICRIER has been conducting a survey on the express delivery services (EDS)/courier industry to understand the need of a regulator for the industry.

The core issues discussed in the survey include whether the highly competitive EDS/courier industry, with no entry or exit barriers and multiple operators (more than 2500 companies) actually need a regulator.

And, if at all there is a need for the regulator then who should be the regulator and what should be its role and responsibilities.

In India, there is no common view across different segments of the courier/express industry and their clients on regulatory issues. Large express/courier companies felt that EDS should be outside the scope of regulator.

Around 59 per cent of clients did not disagree with the suggestion that government should impose some form of registration/licensing requirement to put a check on fly-by-night service providers.

Smaller courier companies also felt that some form of registration from an independent organisation will provide them security and credibility. However, they differed as to who should be the registering organisation – should it be a central courier association, regional associations, or should they register with an independent regulator?

Most of those who support the proposal for registration argued that it should be one-time registration based on the payment of a nominal fee and should be valid for life-long.

If it is life-long registration then it is difficult to monitor service quality. For ensuring service quality, there should be some basic standards which all companies have to follow and a periodic monitoring mechanism should be in place to ensure that companies compile with that standard.

Such periodic monitoring also entails costs since the number of courier companies is much large.

Moreover, since the courier industry/sector constitute of a large number of small, family-based unorganised companies spread across India, it is difficult to monitor them unlike companies in sectors like telecommunications where there are only a few large corporates.

Overall, the survey found that the cost of registration and monitoring is likely to be higher for smaller companies than larger companies since smaller companies are more localised, they do not have large administrative departments, and/or a mechanised system of regular collection of data/information.

These companies are already operating with tight margins and may have to wind up their operations. Since they are more labour-intensive it can adversely impact employment.

Other arguments from supporters of regulator includes anti-competitive practices, address of consumer grievance, access to network, etc.

The anticompetitive practices can be addressed by the Competition Act. Consumer forums can address consumer grievances and in a sector like courier, consumers have a wide range of choice of service providers. If the service provider does not provide quality services, then customer can easily change service provider and there is no cost associated with such a change.

Tie-ups and strategic alliances are crucial among courier/EDS service providers but, unlike telecommunications, there is no scarce resource which acts as an entry barrier and which can be monopolised.

Thus, the argument for a regulator is weak in case of EDS/courier services.

In this context, it is worth mentioning that the Planning Commission in its draft Regulatory Reforms Bill has proposed a regulator for Post (and not for courier) when the postal sector is liberalised. This is necessary since basic postal services are treated as a “public good” – which has to be made accessible to all and reasonable prices.

In fact, the regulators in most countries have come up with privatisation of the postal sector to regulate any malpractices from the dominant incumbent national postal organisation.

In most countries, EDS is outside the regime of postal regulator. The regulator has to be independent since Department of Posts also has similar express services (Speed Post) like private operators and hence has a vested interest in this sector.

Lastly, while in India some officials seem to want a regulator for each sector, the regulatory experiences have been mixed. The requirement for setting up of an additional infrastructure which entails costs will also have to be justified.

Allocations of all scarce resources do not need a regulator. If competition fails then regulator is justified. So far none of the private courier/EDS companies have raised such concerns.

So, the question is whether there is really is a need to bring a highly competitive EDS/courier sector under the regime of the regulator?

(The views expressed are those of the writers-Arpita Mukherjee (Professor, ICRIER), Ramneet Goswami (Researcher, ICRIER) and Parthapratim Pal (Associate Professor, IIM (Calcutta))

Source: India Blooms News Service

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