Comprehensive policy needed for direct selling: ICRIER report

The government should urgently consider a transparent regulatory environment and a comprehensive foreign investment policy to make 'direct selling' a sustainable business, says a report of the Indian Council for Research on International Economic Relations (ICRIER).

ICRIER Director and Chief Executive, Parthasarathi Shome, said despite an annual growth of 20 per cent in the number of direct sellers in India, no clear definition of the segment exists. The FDI policy on direct selling is also not transparent, he said at a conference organised to launch the report 'Socio-Economic Impact of Direct Selling: Need for A Policy Stimulus'.

Based on a national survey of 2,500 respondents, including policymakers, direct selling companies, manufacturers and retailers, the report concluded that the direct selling sector offers self-employment opportunities to a large number of people, especially women. However, it also highlighted the need for policy intervention to sustain the sector's growth. The Indian Direct Selling Association and the World Federation of Direct Selling Associations supported the study.

At an estimated 3 million direct sellers as of 2010, India ranks 11th in terms of the number of direct sellers. However, when it comes to the value of sales, the 14-year old industry in India is ranked 47th. The sales volume clocked by the Indian direct selling industry in 2009-10 is estimated at Rs 4120 crore. The US, Germany and Japan are among the leading direct selling markets of the world.

Focusing on the need for a clear definition of direct selling, the report said the Department of Industrial Policy and Promotion (DIPP) classifies direct selling under wholesale trade for the purpose of FDI inflows. However, it was later clubbed with retail trade (non-store format retail) under NIC (National Industrial Classification), 2008. It also says direct selling is not clearly specified in DIPP's consolidated FDI policy. Since it covers both business-to-business and business-to-consumers aspects, some experts point out direct selling is neither wholesale nor retail, but only a specilaised channel of distribution.

Most countries, including the US, Italy and China, classify direct selling under retail trade, the report says.

While stressing on the need for a streamlined FDI policy, the ICRIER report says retail and direct selling companies entered the Indian market through back door routes because of fragmented regulations. Currently, FDI is not allowed in multi-brand retail and is only partially allowed in single brand retail. It is allowed in wholesale cash and carry. The survey said FDI restrictions on retail has also led to grey market operations.

Another hurdle faced by direct sellers is, "Like retail, direct selling falls under the purview of state legislation and is governed by a large number of ministries/departments at the Centre, state and local levels,” the report said. The multiplicity of regulatory bodies must be streamlined, the report said, while seeking a nodal ministry for direct selling.

Minister for planning, science & technology, Ashwani Kumar, after unveiling the report, said, “The government will examine the report.” He added government decisions are guided by both political and economic choices. DIPP, which falls under the commerce and industry ministry, is responsible for formulating FDI rules.