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UNCLAS SECTION 01 OF 03 NEW DELHI 003582 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/INS, EB/CIP AMBASSADOR DAVID GROSS 
DEPT PLEASE PASS TO USTR 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ECPS ELAB PGOV EINV PREL EFIN ETRD IN
SUBJECT: INDIA SEEKS TO PROTECT POSTAL SERVICES FROM 
COMPETITION 
 
 
¶1.  (SBU) Summary:  Communist labor unions boast 600,000 
members in the public sector postal department and the UPA 
government cannot remain in power without Communist support. 
In a demonstration of the fetters that the Communists can 
maintain over UPA economic policy, the Congress-dominated UPA 
government has moved to placate the Communists by considering 
legislation to amend Inia,s 108 year-old Post Office Act. 
While the Act is long overdue for an overhaul, a number of 
ill-advised proposed amendments would seriously impact U.S. 
and other foreign providers of express delivery services by 
restricting market access and expanding the postal 
department,s existing monopoly into services currently 
provided by express delivery carriers such as UPS, FEDEX, and 
DHL.    Although the Postal Department wants the amendments 
to be tabled in Parliament during the current session, this 
is  highly unlikely as the session ends on May 23.  Moreover, 
industry sources believe that the proposed changes affecting 
express delivery services are unlikely to pass, given their 
negative impact on key sectors such as IT and biotechnology 
that rely heavily on efficient express delivery services. 
Mission has spoken with local chambers and industry and 
registered our concern about this proposal with senior GOI 
officials.  We strongly recommend that this issue be taken up 
at the May 30 Trade Policy Forum in Delhi.  End Summary. 
 
UNIONS BACK THE MOVE 
-------------------- 
 
¶2.  (SBU) Communist trade unions and their sponsoring parties 
are backing a series of amendments to India,s Post Office 
Act.  The postal department employs almost 600,000 workers 
and nearly 90 percent of them are unionized.  G.K. 
Padmanabhan, a senior Congress leader, backed union claims 
that the legislation was necessary to create a level playing 
field for the postal department.  Speaking to Embassy 
officials, he argued that the courier companies were 
indulging in cherry picking by concentrating their businesses 
in big urban centers, whereas the DOP had a social obligation 
to serve each and every village in the country.  Dr. M.K. 
Pandhe, President of the Center of Indian Trade Unions (CITU 
) affiliated to the Communist Party of India Marxist) 
expressed a similar view, saying that his union would 
pressure the government to enact the  legislation speedily. 
Pandhe  claimed that the amendments would bring order to an 
unregulated industry and improve the services of both the 
courier companies as well as the DOP. 
 
PROTECTIONISM IN THE GARB OF REGULATION 
-------------------------------------- 
 
¶3.  (SBU) The GOI,s Department of Post (DOP) announced in 
April 2006 that it planned to move legislation through the 
Indian Parliament to amend the Indian Post Office Act of 
¶1898.  One feature of The Indian Post Office (Amendment) 
Bill, 2006 ostensibly aims to create a regulatory environment 
for the as-yet unregulated courier industry that has grown 
enormously since India began liberalizing key parts of its 
economy that depend on express delivery such as IT and the 
services sector.  Despite some initial problems, the largely 
private sector Rs. 35 billion (approx $778 million) industry 
has set a high standard for speedy and efficient delivery. 
The Bill proposes the creation of an independent regulator 
(on the lines of those already functioning in the 
 
NEW DELHI 00003582  002 OF 003 
 
 
telecommunications and insurance industries) and a dispute 
settlement tribunal.  However, the Bill,s effect would be to 
weaken foreign companies, access to the express delivery 
market in India by excluding any companies with more than 49 
percent foreign equity participation.  UPS representatives 
raised these and other concerns in meetings with the DCM and 
economic section. 
 
MONOPOLY FOR THE GOVERNMENT 
--------------------------- 
¶4.  (SBU) The Bill would expand the DOP  monopoly beyond 
basic and essential universal postal service to any letters 
up to 300 grams.  Letters includes any document or written 
communication produced by mechanical, electronic, or other 
means.  At present, the private courier companies dominate 
and compete at the high end of the postal market by 
collecting express documents.  The postal department has been 
feeling the pinch in the urban areas as  high-value and 
large-volume businesses increasingly switch from traditional 
postal  to express delivery services.  Postal officials have 
tried to justify the proposed monopoly as a temporary measure 
meant to recapture this lost revenue 
¶5.  The draft bill would also impose on private couriers an 
annual license renewal fee of Rs. 10,000 (US $220) for 
domestic deliveries and Rs. 500,000 (US $11,100) for foreign 
deliveries.  Even more burdensome would be the provision that 
private companies with revenues of over Rs 2.5 million (US 
$55,000) pay 10 per cent of their annual revenues into a 
Universal Services Obligation (USO) fund.  The DOP claims 
that this fund will subsidize postal services in economically 
unviable areas. 
PRIVATE SECTOR CONCERNED 
------------------------ 
 
¶6.  (SBU) The courier industry has responded by expressing 
its strong opposition to the proposed legislation.  Industry 
leaders have met DOP officials to register their objections 
to the Bill.  Trade bodies such as the Associated Chambers of 
Commerce and Industry (ASSOCHAM) and the Confederation of 
Indian Industries (CII) have also called on the GOI to 
reconsider the legislation.  Speaking to Embassy Officials, 
Mr. M.K. Garg of Assocham said that passage of this 
legislation by Parliament would send the wrong signal to many 
foreign investors looking for India to open up its economy. 
Echoing similar views, Mr. B.P. Pant of the Federation of 
India Chambers of Commerce and Industry (FICCI) said that the 
proposed legislation would only &preserve and protect the 
loss making and highly overstaffed postal department.8  The 
American Chamber of Commerce in India has also expressed its 
views in writing to the DOP and senior GOI officials. 
 
COMMENT: A LETTER BOMB 
---------------------- 
 
¶7.  (SBU) Most worrying in all this is the UPA,s willingness 
to soak competitive Indian and foreign courier companies to 
protect bloated and somnolent bureaucracies and their union 
workers.  This bill, if enacted, will not bode well for 
future efforts to help the new India escape the old.  The UPA 
government realizes that the bill will restrict the operating 
environment for private courier companies at precisely the 
time when they are providing vital services to Indian 
business and services industry, and that the moves to 
 
NEW DELHI 00003582  003 OF 003 
 
 
restrict foreign investment in the courier business and 
expand the DOP monopoly to all type of mail  up to 300 grams 
would result in significant revenue loss for the courier 
companies.  This would have a significant chilling effect on 
future foreign investment in India in express delivery 
services. 
 
¶8.  (SBU) Although it is well aware of the possible 
deleterious effects, the UPA has moved the Bill forward as it 
has determined that it cannot afford to anger and alienate 
the Communists whose union members are the Bill,s primary 
beneficiaries.  Although the UPA insists publicly that the 
draft Bill will make the courier industry more rule-based and 
transparent, its determination to protect and subsidize the 
Postal Department and its large union is all too apparent. 
This is another demonstration that the Communists have 
virtual veto power over issues vital to them as long as the 
survival of the UPA is in their hands. 
 
¶9.  (SBU) Last year, the DOP suffered a revenue deficit of 
about Rs 1.4 billion (US $311 million) and the government 
wants to end its costly subsidies.  One way to avoid the 
politically difficult decision to cut subsidies is to shift 
the costs to private couriers through the USO 10 percent tax. 
In order for the GOI to correct the current impression that 
it has introduced &reform8 legislation merely to protect 
its overstaffed postal service, it would have to allow 
private courier companies that provide rural services access 
to the USO fund.  We don,t expect the GOI to introduce such 
a measure.  Although the DOP had hoped the GOI would 
introduce this Bill in the current parliamentary session, 
this is unlikely to happen, as the session ends May 23. 
Strong objections by the courier companies have also 
compelled the DOP to take a second look at the legislation. 
Industry sources have told Mission that passage of the 
legislation in its current form is unlikely because of its 
obvious overall negative impact on the economy. 
 
¶10. (SBU) Embassy Econstaff and the DCM have discussed this 
issue with the United Parcel Service.  The Ambassador also 
left a paper with Planning Commission Deputy Chairman Montek 
Singh Ahluwalia expressing strong USG concerns with the 
legislation.  Under Secretary of Commerce Lavin raised this 
issue with GOI officials during his early May visit to Delhi 
and Econstaff have also expressed U.S. concerns with various 
GOI officials.  The U.S. has also raised this issue in the 
services focus group of the U.S.-India Trade Policy Forum and 
Post has strongly recommended that this issue be raised by 
Deputy USTR Bhatia in the May 30 Trade Policy Forum meeting 
in Delhi.  End Comment. 
MULFORD