The Business Di0ary I Nov-Dec, 20138

The Direct Selling industry in India appears to beheading towards achieving a breakthrough ingetting its various hassles sorted out.

Mr. A P Reddy, President, FDSA said that Mr. RamVilas Paswan, Minister of Consumer Affairs, Food andPublic Distribution, during the course of the programme‘DIRECT 2014’ organised by industry body FICCI andconsulting firm KPMG here at New Delhi on December 4,informally revealed to him that the government would sooncome up with specific guidelines to the industry, ahead ofthe amendments to the PCMCB Act and the ConsumerProtection Act of 1986. He said they would be doing so inthe best interest of the consumer and to protect him fromthe fraudulent companies that work under the garb of directselling. The guidelines to the industry can be expected byFebruary or March 2015, Mr. A P Reddy said.

Meanwhile, speaking at ‘DIRECT 2014’ the Ministersaid, “Protection of consumer rights is very important tous. From ‘Peon to the President’ is a consumer at onepoint of time or the other in their lives”.

Mr. Paswan said, “We have taken note of what theindustry has been asking for long, and the internalcommittee, which is working on this, will have its firstmeeting on December 8. We’ll look into this and take a

call, after consultation and inputsfrom all stakeholders of the industry.We have already received somevaluable suggestions. We feel it isimportant to distinguish between thegenuine and fraudulent players, andany regulation that is proposedshould keep in mind the interest ofconsumers as the first priority. I thinkthe demand for a regulator for directselling sector is quite relevant andlegitimate. We are considering it”.

Direct selling is globally popular,but it requires more transparency insome areas, Paswan said, adding“Consumers should not be cheated”.

Meanwhile, the Government hasbeen reportedly planning to includedirect selling and teleshopping in tothe ambit of the amendedConsumer Protection Act of 1986.The proposed amendments areexpected to be placed before theUnion Cabinet soon.

Mr. Ram Vilas Paswan, Minister for Consumer Affairs, Food and Public Distribution, flanked by Messrs. SidharthBirla, President, FICCI, and Shilpa Gupta, Head, Retail, FMCG & Direct Selling, FICCI on the left and KeshavDesiraju, Secretary, Department of Consumer Affairs, Kurush Grant, Chairman, FICCI FMCG Committee and Mr.Rajat Wahi, Partner and Head, Consumer Markets, KPMG on the right releasing a report on Direct Selling jointlysubmitted by FICCI and KPMG at the programme.

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Also, the government is in the processof amending the Prize, Chits and MoneyCirculation (Banning) Act. The proposalcame following few incidents, includingAmway India Chief Executive William ScottPinckney being arrested for the secondtime under the Prize, Chits and MoneyCirculation (Banning) Act in AndhraPradesh earlier this year. He was laterreleased on bail but the incident exposedloopholes in the law.

The amendment in the Act may alsoinclude facilitating mediation and arbitrationbetween parties to bring down the load ofcases in consumer courts. The structuremay also involve empowering panchayats,gram sabhas or such similar institutions tomediate and arbitrate between parties ordesignating and appointing such persons.

Meanwhile, as told by the Minister, theInternal committee of the consumer affairs

ministry met on December 8 and deliberated on the requirement ofan independent regulator for the direct selling industry.

Dr. A. Didar Singh, Secretary General, FICCI, in his foreword inthe report on Direct Selling said, “Though direct selling is a relativelynew industry in India, in less than two decades it has provided self-employment opportunities to more than 5 million people, out ofwhich nearly 60 per cent are women. Besides providing additionalincome opportunities to direct sellers, the industry also generatesdirect employment. Majority of the direct selling companies out-source production, packaging and distribution of their products,thus generating direct employment across the value chain whileenabling the development of the SME sector. The industry also

Direct selling and directmarketing are often confused to bethe same thing and are taken asinterchangeable terms.

Both terms are actually verydifferent from each other and aclear understanding of thedifference will help direct sellingmaintain its own identity.

The crucial differencebetween both the methods hinge

on the mode of publicity that afirm uses to generate awarenessin the market. While DirectMarketing uses one or moreadvertising mediums, DirectSell ing rel ies on directengagement with the purchaserto generate a specific responseor call to action that can bemeasured.

Direct Marketing is a type of

advertising in which companiescommunicate directly to thecustomers through formats like on-line advertisements, direct mail,text messaging and telemarketing.Direct Selling on the other handinvolves marketing anddemonstration of product orservice directly to the customerusually through a personal contact/relationship with the salesperson.

Direct Selling v/s Direct Marketing

The Business Diary I Nov - Dec, 201312

contributes to the exchequer and in2012-13 alone the industrygenerated Rs. 10 billion in taxes.Many direct selling companies havebeen in the forefront by activelycontributing towards social activities.However, there has been a lack ofclarity on the legislations governingthis industry. We strongly believe thata clear distinction betweenfraudulent companies and legitimatebusinesses should be drawn”.

Mr. Rajat Wahi, Partner and

Head, Consumer Markets, KPMG,said that the direct selling industryin India is estimated to be Rs. 72billion (2012-13), and forms onlyaround 0.4 per cent of the total retailsales. This is far lower than othercomparable economies (one-half ofChina and one-tenth of Malaysia).With growth in consumer marketsand increase in its penetration toglobally comparable levels, theindustry has the potential to reach asize of Rs. 645 billion by 2025.

“In India, the industry hascontributed significantly to women’sempowerment, skill development,technology percolation and thegrowth of the SME sector, besidescontributing to the exchequer. Inaddition, the industry also providesa viable form of alternative income,which promotes self-employment.Over five million people are alreadyassociated with the industry as directsellers. With the success of theindustry, which relies on individuals

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‘wholesale cash and carry trade’ tosmoothen inflow of foreign directinvestments, and an independentlegislation and nodal ministry for theindustry thereafter, added theKPMG-FICCI report.

According to the KPMG-FICCIestimates, the direct selling industryin India with the right policy stimulus,this industry might well reach itspotential of Rs. 64,500 crore fromabout Rs. 7,200 crore at present, aninefold increase by 2025. Theindustry has the potential to provideself-employment to 18 million whileabout 60 per cent of this would bewomen, it added. Globally, the directselling industry is estimated at over100 countries with a market size of$167 billion.

The report underlined andhighlighted the importance andactivities of FDSA and stated thatFDSA is formed with an aim toprovide stability and organise thedirect selling industry in India. Thenecessity for such an action was felt

to accomplish sales, number offraudulent businesses have alsotried to emulate the form, but withmalicious intentions and outcomes.This has impacted the industry, whichrecognises this as one of the biggestchallenges to its growth. There is aneed to revisit existing laws andbring about regulatory clarity to buildan environment of trust in order toreap multiple benefits that theindustry has to offer”, he opined.

Meanwhile, KPMG and FICCI, inthe report noted that there is a needto bring regulatory certainty to theindustry, which is mistakenlycoupled with fraudulent moneycirculation schemes because of alack of clarity in existing legislations.Besides pointing out the need for aclear definition of direct sellers, thereport has also suggested aroadmap for mitigating theregulatory challenge for the industryby recommending an immediateamendment in the governinglegislation. Categorisation as

as the ponzi schemes/moneycirculation schemes that were on therise and started eroding thedistinguishing line between directselling and money circulationschemes.

The report further stated thatFDSA has been formed not only withan intention to bring about awarenesson what direct selling is about but alsoto protect it from various quarters ofthe economy. The primary objectiveof FDSA is to work towards bringingdirect selling into acceptance by themedia, the authorities and as well asthe general public.

It also said that FDSA is vestedwith various powers involving:

• Coordinate with membershipcompanies for business discipline,collecting data on monthly basisregarding the new products,distributors enrolled, turnover ofsales and tax contribution to theGovernment to estimate the industryvolume and potentiality.

• Act as a watch dog for allirregular business practices(nonmembers & membershipcompanies of FDSA).

• Coordination with variousgovernment departments to seekprivileges & preferences for industrygrowth, positive identity.

• Act as the Grievance RedressalMechanism for the distributors/members of the FDSA membershipcompanies.

• FDSA has regionalrepresentation bodies to lead andhandle the companies in thatparticular jurisdiction.

The direct selling industry in India has the potential to provide self-employment opportunities to 18 million individuals by 2025.

According to a study undertaken by KPMG and FICCI, the direct sellingbusiness has the potential to become Rs. 64,500 crore industry by 2025,a ninefold increase in 12 years. The report highlighted that direct sellingis one of the fastest growing non-store retail formats in India, recordingdouble digit growth of more than 20 per cent over the past 5 years. In theyear 2012-13, the industry is estimated to have contributed Rs. 1,000crore as taxes to the exchequer, the report said. The industry has seen anincrease of 2.6 million distributors from about 3.2 million in 2009-10 to5.8 million in 2012-13.

Direct selling to provide jobs to18 million youth by 2025