Regulatory maze cramps direct selling

Anuradha Shukla        Last Updated: March 19, 2011  | 13:51 IST

Direct selling may be a relatively new sector in India but the pace of its growth is highlighting the need for a regulation. The Indian direct selling market is expected to reach Rs 7,120 crore by 2013, and with three million independent sales consultants, the sector requires uniform regulatory guidelines and legislations to maintain its growth momentum, a study by Indian Council for Research on International Economic Relations (ICRIER) observed.

"Even when the Indian direct selling market is much smaller in size compared to the developed nations, it is significant high and is estimated at Rs 4,920 crore. It is expected to grow at about 20 per cent to reach Rs 7,120 crore by 2013," said Arpita Mukherjee, the author of the ICRIER report "Socio- Economic Impact of Direct Selling: Need for a Policy Stimulus". The sector employs around three million independent sales consultants out of which 70 per cent are women. The sector also contributes Rs 409 crore in the overall tax kitty of the revenue department.

"However even when the sector is a large employment generator, and a contributor to the government tax kitty, its growth in India is restricted by various challenges, like lack of clear definition, no uniform policy and lack of legislation," Mukherjee added.

According to the report, "One of the key issues facing direct selling companies in India is that, although they have to abide by more than 30 regulations, there is no specific legislation governing this industry. The sector like retail does not have an industry status and there is no nodal government department for this sector."

The report also highlights the confusion of the definition of 'direct selling companies' as it is unclear as to whether it falls under the purview of ministry of consumer affairs or food and public distribution.

Besides, direct selling falls under the purview of state legislation and is governed by a large number of ministries or departments at the Centre, state and local levels. According to the report, the multiplicity of regulatory bodies has resulted in multiple regulations governing this sector. These should be streamlined for the smooth performance of this sector and for setting up a pan- India supply chain and manufacturing facilities.

Retaining human capital and random sales of products outside the direct selling network are some of the concerns that the sector has to grapple with. Some of the other areas of concern are lack of entry barriers to prevent unscrupulous entities besides preventing the entry of fake products in the market.

"Competition with the organised retail has put pressure on margins. The nature of the industry coupled with the absence of a robust regulatory mechanism has made this industry vulnerable to fly-by-night operators," Chavi Hemanth, secretary general, India Direct Selling Association (IDSA) said.

According to her, the biggest threat to the industry is the 'fly by night' operators, who make quick cash by impersonating the leading brands. As a result of this, the consumers end up losing their trust in the brand and money. This, in turn, also affects the credibility of the company and the industry as a whole.

Courtesy: Mail Today 

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