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Direct selling guidelines in India

 
By : Guest on 08 June 2017 E-mail Comments     Print Print  Report Abuse
 



'Direct selling' means marketing, distribution, and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme.

 

Provided that such sale of goods or services occurs otherwise than through a 'permanent retail location' to the consumers, generally in their houses or at their workplace or through explanation and demonstration of such goods and services at a particular place.

 

'Network of Direct Selling' means a network of direct sellers at different levels of distribution, who may recruit or introduce or sponsor further levels of direct sellers, who they then support.

 

Explanation- 'network of direct selling' shall mean any system of distribution or marketing adopted by a direct selling entity to undertake direct selling business and shall include the multi-level marketing method of distribution.

 

'Pyramid Scheme' means a multi-layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, as a result of enrolment, action or performance of additional subscribers to the scheme. The subscribers enrolling further subscribers occupy higher position and the enrolled subscribers lower position, thus with successive enrollments, they form multi-layered network of subscribers.

 

Provided that the above definition of a 'Pyramid Scheme' shall not apply to a multi layered network of subscribers to a scheme formed by a Direct Selling Entity, which consists of subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, where the benefit is as a result of sale of goods or services by subscribers and the scheme/financial arrangement complies with all of the following: -

 

1. It has no provision that a Direct Seller will receive remuneration or incentives for the recruitment/enrolment of new participants.

 

2. It does not require a participant to purchase goods or services:

 

  1. For an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers.
  2. For a quantity of goods or services that exceeds an amount that can be expected to be consumed by, or sold or resold to consumers.

 

3. It does not require a participant to pay any entry/registration fees, cost of sales demonstration equipment and materials or other fees relating to participation.

 

4. It provides a participant with a written contract describing the 'material terms' of participation.

 

5. It allows or provides for a participant a reasonable cooling off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations.

 

6. It allows or provides for a buy back or repurchase policy for 'currently marketable' goods or services sold to the participant at the request of the participant at reasonable terms.

 

Explanation- 'Material terms' means buy-back or repurchase policy, cooling off period, warranty and refund policy.

 

Direct Selling is an alternate form of distributing products and services. Instead of using traditional distribution channel (manufacturer - distributor - wholesaler - retailer - consumer), Direct Selling companies sell their products and services directly to consumers. That is why it is called 'Direct Selling'.

 

When these consumers or customers like their products and services, naturally they start sharing it with others. Direct Selling companies pay you when people buy their products and services from your recommendation.

 

The best part is you are given an option to build a team of distributors (generally consisting of happy consumers recommended by you and those you recommend and those they recommend and so on). Contrary to common misconception, you are not paid to recruit people, you are paid depending on the total sales volume generated by your entire team. Instead of spending money on traditional advertisements & other marketing methods, Direct Selling companies rewards their consumers turned distributors for their word of mouth advertisement effort.

 

Unfortunately, most people are unaware of the clear definition of this industry, and frequently confuse it with pyramid schemes recruiting people to earn money.

 

Below is the Quote from a Report on Indian Direct Selling Industry published by FICCI and KPMG

 

'The direct selling market in India has grown at a CAGR of 16 percent over the past five years to reach INR75 billion today. The market grew at a lower rate of 4 percent in 2013-14 due to the slowdown in the industry.

 

The Indian Direct Selling Industry is well placed to successfully foray into international and domestic markets. However, there are many issues and challenges that need to be overcome to make that vision a reality. The factors hampering full-fledged growth include: fly-by-night Ponzi and pyramid schemes which are often confused with direct selling, a clear legal definition of the industry, and clear and centralised regulations.

 

In states such as Andhra Pradesh, Telangana and Kerala, the direct selling business has been impacted due to lack of regulatory clarity. There is a need for the central as well as respective state governments to arrive at a comprehensive policy for the industry, which would enable the industry to grow and create both direct and indirect employment.'

 

While legitimate Direct Selling companies and its distributors, continued to face troubles, sometimes due to exaggerating promotional practices & sometimes due to lack of proper regulations; illegal schemes pretending to be direct selling companies, continued to trap people to invest their money promising ‘quick & easy money', utilizing the legal loopholes.

 

Organizations such as Strategy India, Federation of Indian Chambers of Commerce & Industry (FICCI), KPMG, Indian Direct Selling Association (IDSA) along with all legitimate Direct Selling companies has been requesting Indian Govt. to come up with clear Direct Selling industry guidelines for ages.

 

Finally Shri Ram Vilas Paswan, Minister of Consumer Affairs, Food and Public Distribution; announced these Model guidelines on Direct Selling with a press release on Monday, 12th September 2016.

 

Quick Compliance Checklist for Direct Selling Companies and Direct Sellers in India

 

  • All Direct Selling Companies in India, should submit an undertaking to the Department of Consumers Affairs within 90 days from 12th Sept, 2016.
  • Direct Seller cannot receive remuneration or incentive for the recruitment/enrollment of new participants.
  • Direct Sellers can only receive remuneration derived from the sale of goods or services.
  • Direct Selling company cannot force its Direct Sellers to purchase more goods or service, than they expect to consume or sell.
  • Direct Seller should carry their identity card and not visit the customer premises without prior approval.
  • Direct Selling company cannot demand any entry fees/registration fees, cost of sales demonstration equipment or other fees relating to participation.
  • At the beginning of the presentation, direct seller must disclose their own identity, identity of the Direct Selling company, nature of the goods/services sold and the purpose of the interaction.
  • Direct Selling company must allow cooling off period to participate or cancel participation and receive a refund.
  • Direct Selling Company must have reasonable repurchase or buy back policy.
  • Company must have a grievance redressal mechanism for consumers.
  • Direct Selling company must clearly disclose the method of calculation of remuneration.
  • Direct Selling company must be a registered legal entity under laws in India.
  • Direct Seller must provide accurate and complete explanations and demonstrations of all necessary information.
  • Giving orientation session to prospective direct sellers, providing fair and accurate information on all aspects of the direct selling operation, is mandatory.
  • The State Governments will also set up a mechanism to monitor/supervise the activities of Direct Sellers, Direct Selling Entity regarding compliance of the guidelines for Direct Selling.
  • Accurate and complete information must be provided to prospective and existing direct sellers regarding the reasonable amount of remuneration opportunity and related rights and obligations.
  • Direct Seller must do proper book keeping for details of the products, price, tax, quantity and such other details in respect of the goods sold by him/her.
  • Company must have an office to provide information and after sales service to consumers and direct sellers.
  • Direct Seller cannot force or encourage other direct sellers to purchase goods/services in unreasonably large amounts.

 

Example - I can still remember my Dad's first reaction about this industry: ‘You joined Network Marketing? You just ruined your life! You know my friend X? He joined company Y and bought a house full of products with big dreams. Couldn't sell most of that and lost hard earned money‘ Well this story will not be repeated again after this directive.

 

  • Company can't demand its direct sellers to pay any minimum monthly subscription or renewal charges.
  • All complaints received over phone, email, website, post and walk-in should have a complaint number for tracing and tracking the complaint and record time taken for redressal.
  • Company must provide all Direct Sellers information regarding sales, purchases, details of earnings, commissions, bonus and other relevant data, periodically.
  • Direct Seller must have a written consent from the company to sell or offer for sale, any product or service from the company, on any e-commerce platform.
  • Company must maintain proper and updated website with all relevant details entity, contact information, its management, products, product information, product quality certificate, price, complete income plan, terms of contract with direct seller and complete redressal mechanism for direct sellers and consumers. The website should have space for registering complaints and should ensure that grievances are addressed within 45 days of making such complaints.
  • Direct Selling company will be liable for grievance arising out of sale of products, services or business opportunity by its Direct sellers.

Industry's Reaction and Media Coverage to Direct Selling Guidelines 2016

 

IDSA's comment on Direct Selling Guidelines 2016

 

IDSA said the move will help in protecting consumers from Ponzi frauds and help them differentiate between genuine and fraudulent schemes, besides ensuring growth for the sector.

 

'Indian Direct Selling Association welcomes the guidelines on Direct Selling with open arms. This will be very encouraging for the development of the Industry. We wish to thank the government, especially, the Ministry of Consumer Affairs for coming out with guidelines for the direct selling industry.

 

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. - Jitendra Jagota, Chairman, Indian Direct Selling Association (IDSA).

 

Amway India CEO's take on Direct Selling Guidelines 2016

 

'The guidelines on direct selling, issued by the Ministry of Consumer Affairs, represent an important step which will both safeguard the interests of consumers, as well as identify and help protect ethical direct selling companies.

 

We also believe that legislation will help the industry actualize its potential.

 

We, along with others in the industry plan to continue to engage with the central government in pursuit of appropriate regulations for the direct selling industry. - Anshu Budhraja, CEO, Amway India.

 

He further added that the new guidelines will spur the growth of direct selling in India and drive entrepreneurship in the sector.

 

'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. The guidelines reinforce our faith in India where we have invested more than Rs. 600 crores to set up a world-class manufacturing facility employing, directly and indirectly, close to 1,000 people'

 

Federation of Indian Chambers of Commerce and Industry ( FICCI)'s comment on Direct Selling Guidelines 2016

 

FICCI welcomed the guidelines saying it was a much-awaited move and it will help the industry to grow.

 

'We are confident these guidelines will certainly help in bringing in regulatory clarity for the sector. FICCI is positive that the state governments will implement these guidelines as the sector is a major contributor towards employment creation and tax revenue - Dr. A Didar Singh, Secretary General, FICCI

 

Oriflame India Director's Take on Direct Selling Guidelines 2016

 

'The direct selling industry now has an operational and definitional clarity and 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. – Vivek Katoch, Director - Corporate Affairds, Oriflame India. 

 

He further said that the move would give a big boost to women empowerment.

 

PwC Director's Comment on Direct Selling Guidelines 2016

 

'Ministry of Consumer Affairs has truly created a milestone in approving the guidelines. Its a very progressive move towards a consumer driven regulatory era.

 

It would however be important that these guidelines also get statutory teeth and be anchored to the Consumer Protection Act itself. It would be crucial to define pyramid schemes under unfair trade practices and expose the consumer to his right to protection from such unfair trade practices. Adoption of these guidelines by the State governments, will further enable a conducive ecosystem for Direct Selling industry in India, 'Shilpa Gupta, Director of Regulatory Services, PricewaterhouseCoopers

 

KPMG's Statement on Direct Selling Guidelines 2016 [Tax Flash News - 14th September 2016]

 

'One of the biggest challenges for the Indian Direct Selling (DS) industry is a lack of express regulatory framework. As a result, often DS companies are compared to pyramid schemes under the Prize, Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS). PCMCS, which was enacted much before the advent of a bona fide DS industry in India, is archaic and does not distinguish between rightful DS businesses from malicious DS schemes.

 

States like Andhra Pradesh, Kerala, Sikkim, etc. and Union Territories like Chandigarh, on multiple occasions have taken misguided penal action against legitimate DS companies, and this has stunted the growth of the DS industry in India.

 

Apart from the ambiguity in PCMCS, there are many other regulatory issues including lack of definition of DS and separate regulatory provisions for the industry.

 

In the wake of the above challenges and pursuant to extensive interactions with the DS industry, recently, the Union Ministry of Consumer Affairs, Food and Public Distribution issued a Model Framework for Guidelines on DS (Direct Selling Guidelines 2016 or Model Guidelines) for respective state government(s) [as retail trade is a state subject under the Constitution of India] to take necessary actions for implementation of the same.

 

The Direct Selling Guidelines 2016 (DSG) have been issued as guiding principles for state government(s) to consider regulating the businesses of DS and Multi- Level Marketing (MLM) and strengthen the existing regulatory mechanism on DS and MLM, for preventing fraud and protecting the legitimate rights and interest of consumers.'

 

Direct Selling at Rescue for Employment generation in India

 

'Unemployment still remains one of the biggest concerns for the Government, which under the leadership of PM Modi is striving hard to generate more employment. It is not an issue that can be tackled in a jiffy. Rather, it will need a combined effort of government and industries to improve the unemployment ratio, that too over a period of time,' believes Secretary General, Indian Direct Selling Association, Amit Chadha.

 

Talking about Direct Selling, he adds 'Direct Selling is one industry that has been generating self-employment opportunities for about 20 years in the country. As there is no such restrictions and criteria to become a Direct Sellers, people from all walks of the society join Direct Selling, irrespective of gender, skill-set and age. A person aged 60 is as welcomed in Direct Selling as an 18-year-old. Direct Selling embraces everyone with open arms.'

 

'Over the last two decades, this industry has made it way to every corner and strata of the country and it is getting popular with every passing day. In 2014-15, the Industry generated close to 40 lakh self-employment opportunities in the country and we expect the number to grow in the coming days' he further stated.'

 

The annual revenue size of the direct selling industry in 2014-15 was estimated at around Rs.7900 crores.

 

At a time when businesses are not expanding as a fast pace, the employment generation in the country has also taken a hit.

 

In such a scenario direct selling has been one of the few industries, that has continued to make steady progress and pushing boundaries towards overall growth.

 

Chadha is of the view that the Direct Selling Industry has been instrumental in shaping up careers of millions of Indians, especially the unskilled ones, who could not find a place in the mainstream. This industry transforms a common man into a leader, who later on mentors thousands of people like him, helping them to be a part of the mainstream.

 

'What is significant is the fact that many of the successful Direct Sellers are now helping other people to set up their businesses. Clearly, it is a people's business, where one helps the other; resulting in building the nation,' Chadha further added.

 

The main attraction of working in this industry is the option of flexible hours people work at their own leisure and time, without being bound to strict timelines. Many working people join Direct Selling as a supplementary earning opportunity.

 

Direct Selling is a booming industry, a boon for an economy and employment generation towards better future. It boosts confidence of individuals and therefore leading the industry as well as the workforce involved, to a higher growth trajectory. It is an attractive option, allowing people to manage their own business with minimal outlay as well as generate an income.

 

'The need of the hour is to give boost to an Industry like Direct Selling that has a socio-economic impact to the lives of many. Not only it generates employment, as a result, the Industry also empowers its workforce with skill, knowledge, power to express, improving interpersonal skills and above all, lead a life of a 'leader, inspiring other to replicate their success,' Chadha further asserted.

 

Being a CA and also involved in this industry, it is very important to keep updating my facts and knowledge from time to time.

 

My first book on GST is coming soon in the market. Please reach on my mail id for further inquiries.

 

Please let us know your thoughts on this. I would be happy to help!!

 

The author can also be reached at ca.anurag10@gmail.com

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