The direct selling industry is a major contributor to the economy. Misinterpreting legislation to harass firms amounts to killing the goose that lays the golden egg
Direct selling is the business of peer-to-peer sale, in which people earn a commission on goods sold. It is the marketing, distribution and sale of goods and services as part of a network of direct sellers, other than under a pyramid scheme. This industry, which is a major contributor to the economy, is expected to grow at a rate of nearly five per cent every year and be worth Rs 15,930 crore by 2021. Additionally, and perhaps more importantly, direct selling creates employment. As of now, direct selling firms employ over 50 lakh people in India, a number that is set to grow to 1.8 crore by 2025. And India needs these jobs. Facilitating job creation, inter alia, is one of the top priorities of the government.
This industry actively encourages the employment of women in large numbers and is a way to empower them by making them economically independent. Over 53 per cent of entrepreneurs engaged in direct selling in India are women. Stand Up India is a government scheme that incentivises female entrepreneurship by facilitating bank loans ranging from Rs 10 lakh to Rs 1 crore. Direct selling is not only helping create women entrepreneurs, it’s also helping the government meet yet another of its stated priorities.
All that India’s direct selling industry needs is an enabling ecosystem, one that enables companies to conduct business in an atmosphere free of prejudice and fear. As things stand, there are very few regulations in place for direct selling companies in India. The Model Framework for Guidelines on Direct Selling, issued in September 2016 by the Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, remains the definitive document, guiding regulation of the direct selling industry.
The guidelines address every aspect of the direct selling business. They include detailed conditions for setting up and conducting a direct selling business, rules for protection of consumers, provisions for prohibition of pyramid and money circulation schemes, and for the appointment of a monitoring authority for direct sellers and direct selling companies.The guidelines are advisory in nature and though 12 states have adopted them, all states must do this and frame laws that govern direct selling in a just manner.
The guidelines clearly state that direct sellers and firms shall be guided by provisions of the Consumer Protection Act, 1986.
There are law enforcement agencies that look at direct selling companies through the lens of the Prize Chits and Money Circulation Schemes (PCMCS) Banning Act, 1978. This Act seeks action against any scheme that involves making easy money or getting money as the consideration for a promise to pay money based on enrolment of members to the scheme.
The Act goes on to say that no person shall promote or conduct any prize chit or money circulation scheme, or enroll members to any such scheme or participate in it or receive or remit any money in pursuance of such chit or scheme.
Classifying direct selling companies under this Act is erroneous, as they are not engaged in the business of seeking deposits from people and they do not guarantee returns. Direct selling companies provide people with the opportunity and the skill set to sell products and make a commission on sales.
The business model involves a product that needs to be sold, for any money to be made. Direct sellers have to work hard to make these sales. They have to use skill and intellect to make people buy their products, and they have to make sales continuously, in order for them to keep receiving commissions. Direct selling is by no means a deposit taking scheme and there is no guarantee whatsoever, of returns. It is, therefore, incorrect to see direct selling companies as falling under the purview of the PCMCS (Banning) Act, 1978.
There have been instances in some states where law enforcement agencies have harassed and even jailed representatives of direct selling firms by resorting to such misinterpretation. This is downright unacceptable and must stop. Misinterpreting legislation to harass direct selling companies (and their representatives) amounts to killing the goose that lays the golden egg. This industry can play a vital role in creating large scale employment opportunities to make India a nation of micro-entrepreneurs, a nation that is able to reap its demographic dividend to the full. The Model Framework for Guidelines on Direct Selling was designed because there was no law to regulate the direct selling industry, and in some states, the Act was being wrongly used to regulate direct selling. Direct selling is an industry that is growing fast with the emergence of new players and the guidelines lay a foundation for the industry to function properly. The guidelines are there to protect legitimate direct selling businesses and penalise those businesses that try to circumvent established industry norms.
(The writer is former Secretary, Department of Consumer Affairs, and was responsible for formulating direct selling guidelines in 2016)
