There should be a centralised regulatory mechanism and a mandatory registration process for all direct selling entities operating in the country, a study by Indian Institute of Corporate Affairs (IICA) says. The IICA works under the aegis of India’s Ministry of Corporate Affairs.
The whitepaper on regulation of direct selling in India, called for setting up of a centralised regulatory mechanism to redress the regulatory uncertainty existing in the country.
It also recommended a mandatory registration process for all such entities in the country, on the lines of the mandatory SEBI registration for all schemes soliciting investments.
Registration for players in the direct selling industry should be done through the proposed central regulatory body for the industry, it said.
The study also called for drafting clear definition of direct selling so that law enforcement agencies could easily differentiate between legitimate direct selling activities and the illegitimate ponzi/pyramid schemes.
Legislative reform in the direct selling arena is necessary in order to identify advanced ponzi/pyramid schemes, clear up regulatory uncertainty and also to ensure protection of both direct sellers and consumers, the whitepaper said.
At present, India has no dedicated legislation in the arena of direct selling.
Direct selling entities are mostly regulated by individual states under several laws like the Contracts Act, the Consumer Protection Act and the Prize Chits and Money Circulation Schemes (Banning) Act, which enacts a ban on ponzi schemes and fly-by-night operators.
There has been instances of consumer grievances against some of the direct selling companies.
Though modern direct selling was initiated in India around the 1980s when small Indian firms like Eureka Forbes recruited direct sellers to sell its vacuum-cleaners door- to-door, the industry picked up steam following the entry of leading international players in this field such as Amway and Avon in the 90s.
The direct selling sector, which offered self employment opportunities to as many as 96.3 million people in the country as of 2013, is projected to be worth USD 34 million by 2019-20. Women comprise almost 58.3% of the direct selling industry in India.
The direct selling industry in the country is mainly a channel of distribution for health and wellness products, cosmetics, consumer durables, water purifiers and life insurance.
Considering the rapid growth of disposable incomes and the rise of middle class in India, there is likely to be a huge increase in demand for direct selling goods in future, contingent on a favourable regulatory environment, the whitepaper noted.
Globally, while countries like Singapore and Malaysia have dedicated legislation on direct selling, countries like the US have state-specific statues or federal laws on pyramid schemes to protect consumer interests.