BackInter-ministerial committee likely to regulate direct selling industry
The first meeting is likely to be held on 8 December to discuss a framework to regulate retail trading through direct selling and e-commerce
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New Delhi: In an effort to provide clarity on the workings of the direct selling industry, an inter-ministerial committee has been set up to create a framework to regulate the industry, minister for food, public distribution and consumer affairs Ram Vilas Paswan said on Thursday.
The direct selling industry in India sees participation from several large foreign companies and has faced allegations of running fraudulent schemes in the country.
“We have recently formed an inter-ministerial committee to deliberate on the need and framework of regulations for the direct selling industry," Paswan said at an event in the capital, organised by industry lobby body Federation of Indian Chambers of Commerce and Industry (Ficci) and consulting firm KPMG.
The first inter-ministerial meeting is likely to be held on 8 December to discuss a framework to regulate retail trading through direct selling and e-commerce.
Proposals to set up a regulator for direct selling were also put forth at the event.
Keshav Desiraju, secretary, consumer affairs, said, “The industry needs to have a regulator to look at its issues more closely and resolve them."
In recent times, direct selling companies have been under the scanner for alleged fraudulent practices that put the industry at par with pyramid schemes that compensate individuals for adding more people into the network without any realization of sales.
In May 2013, William Pinckney, chief executive officer of American direct selling company Amway India, was arrested in Kerela for allegedly duping members of its direct sales network. Pinckney was subsequently released on bail.
He was arrested again in May this year by Andhra Pradesh police in connection with criminal cases registered against the firm in the state. He was released on bail two months later in this case too.
Amway India sells personal care, nutrition and wellness products as well as cosmetics through a direct selling business model that allows people to become members of the company and sell products to other people directly, instead of through stores.
Direct selling in India is estimated to be around ₹ 7,200 crore, with companies such as Amway, Tupperware and Oriflame selling to consumers through a non-store retail format. The business model is governed under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS). Prize chits and money schemes compensate individuals for adding more people into the network without any realization of sales.
However, for direct selling companies, the business model does not compensate people for growing the network; compensation is driven by sale of products only. In India direct selling can be brought under the purview of the PCMCS if the business encourages or is purported to promote money circulation or pyramid selling.
“My ministry appreciates the need of creating a regulatory framework for the direct selling and e-commerce sectors," said Paswan. “We feel it is important to distinguish between the genuine and fraudulent players, and any regulation that is proposed should keep in mind the interest of consumers as the first priority."
According to a report released by KPMG and Ficci on Thursday, India’s direct selling industry is likely to touch ₹ 64,500 crore by 2025 and currently employs 5.8 million people.
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