China and India are both examining the future of their post offices in the wake of some of the leading earlier fully state-owned European postal services successfully transforming themselves. It is important for India to get things right but as of now there are no signs that it will be able to do so.

There is both a similarity and a critical difference between what China and India are contemplating. The similarity is that officialdom in both the countries wants to reserve postal mail below a certain weight for the state-owned service, amidst strong protest from private operators in the field.

The private courier services in India and China have pointed to the most important consequence that such a monopoly for the incumbent is likely to have - kill a large number of low-skill jobs with the couriers, which governments can hardly afford to allow.

In the case of India, the website where the draft Bill to sanction this monopoly is posted for public discussion says in support of its move that such monopolies exist in other countries. But what it does not say and which is relevant is that in one part the world, for example the European Union, where such a practice still exists, it is set for sunset under the European Commission's ongoing reform programmes. India should surely conform to the future, not the past.

While monopoly for the incumbent is an emotive issue, there is another, which is far more important. The Chinese government has approved plans to corporatise China Post into a state-owned firm, and what is more, within that, carve out the savings bank operations into a full-fledged bank which in size will become China's fifth largest.

India has no such plans although a massive amount of deposits, around Rs 2.6 lakh crore in 2004-05, resides with the post office. How big this is can be gauged from the fact that the country's largest bank, State Bank of India [Get Quote], currently has a deposit base of around Rs 4 lakh crore (Rs 4 trillion). The Indian post office ended 2004-05 with a deficit of Rs 1,382 crore (Rs 13.82 billion) after receiving a remuneration of Rs 1,861 crore (Rs 18.61 billion) for performing the savings bank functions.

Why the Indian post office savings bank operations are not being converted into a separate bank is easy to understand. The entire amount of deposits provides a budgetary prop to the finance ministry, which without that will find it that much more difficult to keep its deficit under control.

Every time postal rates are raised, public discussion centres around the subsidy that the lowly postcard needs in order to be kept alive for the good of the common man, but seldom mentioned is the handsome benefit that the finance ministry derives from the way the post office is run.

Anyone who has the future of the post office at heart and wants it to be robust and self-reliant, even while discharging important public service obligations, should focus attention on making it autonomous and within it convert the postal savings operations into a proper bank.

The latter will give the entity the financial muscle to both look after itself and also do some public good. In such a scenario, the post office can become a bit like the railways, performing some public service even while being financially robust.

Deutsche Post and TNT of the Netherlands have both morphed from public postal services into more broadbased logistics and express services providers. The Indian post office has a chance to morph itself into something even more significant because of its unparallelled reach.

It can be the final e-governance outpost of the Indian system, provide the simplest banking services like receiving deposits and making remittances (the latter at much lower costs than now possible through the postal money order) and offer internet kiosk facilities in areas where none others can.

But for an organisation to transform itself from a staid government department into something more professional and innovative, it needs not just autonomy but a strong revenue stream. With independence, administrative and financial, comes self-esteem and then it becomes possible to attract better talent.

On the other hand, the new initiatives the post office is now taking are piecemeal. It is selling a bit of financial products for others and getting ready to offer service like address verification. It also runs the express service Speed post, which has recently cut prices to fight low-cost competition.

The service seldom delivers the next day and it is hopelessly difficult to log onto the net and track your item if you wish to. What is needed is a vision under which product offerings and their pricing are carefully thought out.

If the government eventually allows postal savings to be turned into a bank, then a key question to be addressed will be whether it should go in for retail lending, say give small loans to farmers.

Probably, that will not be advisable initially. The deposits should be placed in government and top-quality paper. The postal bank can also lend to micro finance institutions, selected and approved by an organisation like Nabard.

Micro finance beneficiaries can open deposit accounts and in the entire process money order charges, which currently add several percentage points to the cost of micro finance, can be eliminated.