Govt issues norms to regulate direct-selling firms

Pyramid scheme firms, such as Amway, Tupperware, Oriflame, reward users for signing up more customers, and inevitably collapse, leading to losses for a large number of customers


The Indian Direct Selling Association, a lobby group, has frequently asked the government for separate regulations for the direct selling industry. Photo: Pradeep Gaur/Mint
The Indian Direct Selling Association, a lobby group, has frequently asked the government for separate regulations for the direct selling industry. Photo: Pradeep Gaur/Mint

New Delhi: Firms like Amway India Enterprises Pvt. Ltd, Tupperware Brands Corp. and Oriflame India, which are engaged in direct selling in the country, must stop charging entry or registration fee from their agents or “direct sellers”, ensure buy-back of unsold stocks and avoid pyramid schemes, the consumer affairs ministry said in an advisory to state governments on Monday.

Besides, the companies will have to enter into agreements with their direct sellers or agents and ensure full refund or buy-back guarantee for goods and services sold to them, said the advisory, titled Direct Selling Guidelines 2016. In its effort to clean up the direct selling industry, the ministry asked the state governments to consider the advisory as “guiding principles” to regulate direct selling and multi-level marketing companies to prevent fraud and protect consumer interests.

Companies operating pyramid schemes reward users for signing up more customers, and as the scheme grows, it inevitably collapses, leading to losses for a large number of customers. Such schemes are illegal in many countries, including India.

“It (direct selling) does not require a participant to pay any entry or registration fee, cost of sales demonstration equipment and materials or other fees relating to participation. It provides a participant with a written contract describing the ‘material terms’ of participation,” noted the guidelines.

It further added: “It has no provision that a direct seller will receive remuneration or incentives for recruitment or enrolment of new participants. It does not require a participant to purchase goods or services for an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers.” Besides, the guidelines have specific clauses on buy-back policy, consumer protection and grievance redressal mechanism among others.

The Indian Direct Selling Association (IDSA), a lobby group, has frequently asked the government for separate regulations for the direct selling industry and clear exclusion from the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, which currently governs the sector.

“In the absence of proper policy or guidelines, numerous fraudulent players have been taking advantage of the situation. Now that the guidelines are out, it shall address the current concerns of the Industry and provide much needed impetus,” IDSA secretary general Amit Chanda said.

“Amway complies with the highest standard of industry code of ethics and always offers protection to consumers and distributors. Amway India does not charge any entry fee to the distributors. Further, distributors are free to exit anytime. All of Amway’s products are backed by a refund policy,” said Anshu Budhraja, CEO, Amway India.

The government had, in December 2014, set up an inter-ministerial committee to create a framework to regulate the direct selling industry.

The inter-ministerial committee was set up after a host of foreign companies engaged in direct selling faced allegations of running fraudulent schemes in the country.

Due to the prohibition of the pyramid scheme, said Vivek Katoch, director (corporate affairs), Oriflame India, the direct selling industry now has an operational and definitional clarity. “What makes us more relaxed is that e-commerce websites won’t be able to sell the products of direct selling companies without their approval,” he added.

“These guidelines will certainly help in bringing in regulatory clarity for the sector,” said A. Didar Singh, secretary general, Federation of Indian Chambers of Commerce and Industry (Ficci), an industry body that has been working with the Government and companies on the issue for past few years.

Ficci, in a joint study with consultancy firm KPMG in December 2015, predicted the direct selling industry in India has the potential to reach Rs64,500 crore in revenue by 2025, with the right policy stimulus.

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