In a rare move, the Foreign Investment Promotion Board (FIPB) has decided to discuss a stand-alone policy matter, with no company proposal or investment involved, on direct marketing and multi-level marketing in India at its next meeting on August 24. Typically, FIPB, a wing in the finance ministry, takes up specific foreign investment proposals of companies for vetting.
For the next meeting, which secretaries of all key ministries will attend, discussion on direct marketing has been listed as a separate item on the agenda.
An official in the know said this initiative was linked to the government effort to introduce foreign direct investment (FDI) in multi-brand retail and a revised single brand policy soon. Even as up to 100 per cent FDI is permitted in direct selling/marketing as it is seen more aligned with wholesale trade, the government wants to take a comprehensive look at the sector now as it essentially caters to both business-to-business as well as business-to-consumers. Before coming out with its notification on FDI in multi-brand retail, the government wants to review the rule book for direct sellers and do away with the grey areas in the policy related to the industry, it is learnt.
Apart from the FDI issue, the FIPB discussion may focus on the quantum of sourcing from India in the case of direct selling companies, many of which are foreign players. As per government norms, any single brand retail company with 100 per cent FDI must mandatorily source 30 per cent of value of products sold from the Indian small and medium enterprises. This condition is being seen as a hurdle for many international players, including Sweden’s furniture giant IKEA which wants to invest Euro 1.5 billion in India.
Ensuring employment through retail trade in India is yet another aspect that the government is looking at vis-à-vis the direct selling industry.
The Rs 5,200-crore direct selling market in India has recently witnessed controversies related to unfair money-making schemes and duping of consumers. That is another reason why the government is serious about regulation of the sector. An inter-ministerial committee is expected to come out with regulatory guidelines for direct selling companies by the end of this month.
Direct selling refers to a non-store retail format, where companies sell the products to the associates/ agents, who then sell them to consumers at their doorsteps. The companies in the sector include Amway, Avon, Oriflame, Tupperware and Eureka Forbes. Multi-level marketing is one of the compensation plans of the direct sellers.
S Subramanian, chairman, Indian Direct Sellers Association (IDSA), told Business Standard: “We have been meeting officials in the commerce and finance ministries for many months now, asking for a regulatory framework for the sector.” Industry estimates suggest the industry size would almost double by 2014 to over Rs 10,000 crore.
While IDSA has 14 members, there are an estimated 3 million direct sellers in India. While India ranks 11th in terms of the number of direct sellers, its value of sales is 47th. The US, Germany and Japan are among the leading direct selling markets of the world.
While in India, direct selling is a grey area in terms of FDI rules, many other countries like the US and China have categorised it as retail trade. And, though no FDI is allowed in multi-brand retail in India, both in wholesale trade and single brand retail, up to 100 per cent foreign investment is permitted.