In India, the direct selling industry has registered a remarkable growth in the last few years, in the number of direct sellers involved in the business. This industry has provided self-employment and part-time income opportunities to more than 50 lakh people in the country in 2017, and companies like Amway, Tupperware, Oriflame, QNet, and Herbalife have become household names offering quality products and services in various categories. The Indian direct selling industry is expected to grow at a compounded annual growth rate (CAGR) of about 4.8% to reach Rs 15,930 crore in 2021, according to a study undertaken by ASSOCHAM.
The nature of a direct selling business is such that it affords flexibility of time and convenience of working from anywhere, which is perhaps the reason so many people find it attractive, especially women. Another interesting thing about direct selling is that there are no prerequisites for this opportunity. Getting into direct selling requires no educational qualifications, previous work experience, and has no age or gender limitations which makes it ideal for people from all walks of life, whether they are students looking for part-time income, recent college graduates, long time stay-at-home parents looking to get back into the workforce, and those with little or no work history.
In recent years, direct selling companies in India have been in the news for the wrong reasons. Due to lack of awareness, this business model is often confused with things like chit funds, ponzi schemes, investment opportunities etc. While there are hundreds of legitimate and genuine direct selling companies in India, there have been instances of various companies operating fraudulent schemes under the guise of direct selling, misleading the public. Such companies often make unrealistic promises about return on investments, offer commissions on the recruitment of people, and have no real products. These incidents have created the perception that direct selling is not a legitimate business and has led people to view even genuine companies with a healthy dose of scepticism.
Given the increasing number of such incidents in which people lost their savings, while at the same time realizing the important role played by direct selling companies in addressing the rising unemployment rate in the country the government of India recognized the need to regulate the direct selling industry. In September 2016, the Ministry of Consumer Affairs has appointed the nodal authority for the direct selling industry and they rolled out the model direct selling guidelines. These guidelines serve as the framework within which legitimate direct selling companies must operate in the country. This was a significant step for the burgeoning industry in India which generated over USD 1 billion in revenues last year. More importantly, the guidelines finally helped create awareness about the direct selling industry and helped define how it differs from pyramid schemes.
Since the guidelines have been issued by the Centre, the onus is upon the States to adopt and implement them at the local level. In the last few months, many states including Andhra Pradesh, Telangana, Sikkim, Rajasthan and Kerala have adopted these guidelines while others like Karnataka, Maharashtra and Tamilnadu are in the process of doing the same. This is an important win for genuine direct selling companies in the country.
However, merely adopting guidelines will have only a limited impact on this sector which needs serious policy reform. Industry bodies have come together and urged the government to create a separate legislation for direct selling, similar to the ones in neighbouring South East Asian countries such as Singapore and Malaysia.
While these developments from the government are encouraging, the direct selling industry must also understand that due to past instances it runs an inherent reputation risk. The industry must collectively work to turn around the general perception of direct selling. Critical corrective measures must be taken to put an end to fraud and mis-selling in the business.
Direct selling has immense socio-economic benefits. It promotes entrepreneurship, addresses unemployment, helps with women empowerment, and provides much-needed skills training to young people.
The guidelines are the right first step in addressing the regulatory vacuum that has existed for so long. The long-term solution lies in strengthening customer awareness, implementing a strict code of conduct for direct sellers, and potentially creating a self-regulatory organisation along the lines of Association of Mutual Fund Companies, to monitor and set standards for best practices in the industry.