India should enact a new policy for the direct selling industry to exploit its growth potential, says a study

To have an edge over other fast growing East and South-East Asian economies, the government needs to formulate and enact a new policy for the direct selling and multi-level marketing industry. Countries like Thailand, Malaysia, South Korea, Indonesia, China, Vietnam, Japan, Taiwan and Singapore already have such statutes that regulate and facilitate the direct selling industry.

There is a view gaining credence that given the importance of the direct selling industry, an importance that is only likely to increase in the future, a fresh piece of legislation was the need of the hour. Direct selling accounts for 35.8 per cent of non-store retail sales, 4.41 per cent of organised retail sales and 0.07 per cent of GDP. Therefore, direct selling is going to increase in importance in India, according to a study done by Indicus Analytics, India’s premier economics research firm. The study ‘Direct Selling in India: Appropriate Regulation Is the Key’ has been authored by renowned economist, Prof Bibek Debroy.

Demanding operational clarification and clear distinction at the central level, the study urges amendment of the Prize, Chits and Money Circulation Schemes (Banning) Act, by first defining direct selling including multi-level marketing; second, there needs to be an explicit qualification explaining that direct selling is not to be interpreted as a money circulation scheme; third, a pyramid scheme has to be defined, so that people know what is being prohibited. This will protect direct selling companies, protect consumers and facilitate enforcement.

The number of direct sellers was estimated to be almost four million in 2010-11. For that same year, sales revenue was estimated at Rs. 6,300 crore ($1149 million), accounting for 35.8 per cent of non-store retail sales, 4.41 per cent of organised retail sales and 0.07 per cent of GDP. Therefore, logically, three propositions do follow. First, direct selling is going to increase in importance in India. Second, it will provide an additional source of employment, often part-time and often to women and its contribution to tax revenue will also increase.

According to Prof. Debroy, the Centre has failed to catch the nuances of the direct selling business versus pyramid schemes putting the entire machinery to scrutiny and confusion among the companies, State level regulators, judiciary and the direct sellers themselves.

According to the study, in India direct sales and multi-level-marketing are all being inadvertently bracketed with pyramid and ponzy schemes; consequently consumer protection considerations are being imposed on perfectly legitimate and beneficial economic activities with significant positive externalities.

The adverse outcomes of such flawed policy could be many — increase in cost of sales, reduced competition, greater inefficiencies and increased cost of entry for new firms being some. Not only developed, even fast growing developing countries have recognised this and have drafted a facilitative structure for direct sales and multi-level marketing that clearly distinguishes them from pyramid schemes.

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