Instead of classifying direct selling and multi-level marketing as a ‘‘disguised form of money circulation”, based on a flawed understanding of the sector, the government must build a framework and create appropriate policy to promote the sales and marketing platform, economist Bibek Debroy has argued.
“First, direct selling is going to increase in importance in India. Second, it will provide an additional source of employment, often part-time and often to women. Third, its contribution to tax revenue will also increase,” Debroy wrote in Indicus Analytics' ‘Report on Direct Selling Industry in India’.
Direct selling, according to the Indian Direct Selling Association, “means the marketing of consumer products/ services directly to the consumers, generally in their homes or the homes of others, at their workplace and other places away from permanent retail locations, usually through explanation or demonstration of the products by a direct seller.”
But, as Debroy notes, there is no specific regulation in India to govern the sector. Instead, the Prize, Chits and Money Circulation Schemes (Banning) Act that is often utilised to target such businesses, does not clearly distinguish between MLM firms and those indulging in pyramid structures, where commissions are paid on registration and entry fees, and not on sales of products.
“These (systems) are low transaction cost mechanisms for sales that have a very high value added component, and are not very resource intensive unlike other forms of sales and marketing. Direct selling and multi-level marketing, therefore, allow firms, small and large to use business models that preclude the need for building large physical retail infrastructure,” he wrote.
“An amendment is needed to the Prize, Chits and Money Circulation Schemes (Banning) Act, making the distinction clear,” Debroy argued, which must be insure that direct selling, including multi-level marketing is define and the distinction between pyramid schemes and others made clear. Concurrently, an amendment in the Consumer Protection Act is also required, he said, to explicitly mention pyramid schemes as an “unfair trade practice.”
Moreover, there is a necessity to create a registration and licensing system for the direct selling companies, Debroy noted, to help these firms move from the unorganised to the formal sector.
“Ensuring the correct delineation by specific definitions in policy and tort would be the first step. Removing such fuzziness from some laws would be another important step. A registration and regulatory regime would need to be built up over a period of time,” he added.
