The one in a century catastrophe, the Covid-19 pandemic, has been a disruptor of businesses and a fuel to social imbalances. The Covid crisis has put a dent on the growth delta and has caused a tectonic shift in the fundamental functioning of the economic ecosystem. Priority consumer spending during the pandemic was a boon for the IT and pharma sector, however, it devastated the most labour intensive and consumer discretionary product industries, which together make up 30% of the total population and majority of the lower middle class. Worsening the fact is that 81% of the workforce in these industries are in the informal structure, often on daily wage with no job security. In the past few months, as the local brick and mortar businesses struggled to stay afloat, global e-commerce giants spread their reach across the urban & rural areas. As a result, over 7.4 million livelihoods are on a brink of a fallout.
The Direct Selling industry (where products reach consumers from their friends, neighbours of family-members who are direct sellers) offers livelihoods to millions, with no investment but time and effort, this is an industry that is now part of the socio-economic landscape of the country. According to the annual survey of IDSA, this industry is part of the global $180 billion industry, that has heavyweights like Amway, Herbalife and Oriflame from overseas, as well as Indian companies like Medicare etc. Pegged at a Rs 16,772 crore annual turnover in 2019-20, this industry has been struggling to find its place in the sun, due to the baggage of perception, when they are unfairly mistaken with Ponzi schemes. To be sure, it is a disruptive form of selling daily-use products, that has come under flak in many countries for the aggressive recruitment and sales pitch.
The industry which has been seeking regulatory clarity for over a decade, may finally see light at the end of the tunnel, as and when the Department of Consumer Affairs (DoCA) notifies Direct Selling Rules under the Consumer Protection Act 2019.
In end-2016, the DoCA notified Guidelines for the Direct Selling industry, which were the result of an Inter-Ministerial Committee comprising Consumer Affairs, Finance, Commerce, Law, IT as well as Chief Secretaries of three States. Sixteen States notified these guidelines and Direct Selling found mention in the Consumer Protection Act 2019, along with e-commerce. These Rules are expected to strengthen consumers› interest, as well as to bring about regulatory clarity for the Direct Selling business in the country. On 30 June this year, DoCA put up the Draft Rules for Direct Selling on their website, giving until 21 July for stakeholders to send in their comments.
What’s interesting is that precise a decade since the first regulatory action threatened the very existence of this industry. In July 2011, the Oomen Chandy-led government in Kerala, was on the verge of shutting this industry down, as a few Ponzi scheme operators vanished overnight. In a classic case of let’s-throw-the-baby-out-with-the-bathwater, there was a move to shut down this industry, till intense industry interactions spread over three months, saw the State issue guidelines in September 2011.
A perusal of the recently proposed Rules indicates that the industry will finally get what it has sought—total and complete legitimacy, but may push the industry toward a licence raj. If the Rules come out the way they are, each and every of the 7.4 million Indians will have to register themselves with the Department for the Promotion of Industry and Internal Trade. Industry associations representing this industry are of the view that this goes against the fundamentals of Ease of doing business, as this unprecedented step, will take this fledgling industry, back into the licence raj days.
In 2020, India jumped 14 ranks to 68th position in the World Bank›s annual report on the Ease of Doing Business (EODB). This was owed to an increased penetration of digitalisation, simplified IBC norms and narrowing of the registration windows. However, in reality, these advances are limited to medium and large enterprises and often does not touch the small business who are majorly unorganised but employees the maximum unskilled workers. India can achieve true ease of doing business only when a person, even with no formal education, can ideate and execute a business within a viable period of time. However, the recently passed Direct Selling Rules can act as a major deterrent in achieving this goal.
Even though the Indian government was finally able to recognise the industry, but the strict norms of registration may demolish the flexibility of the system, which gives the industry a major leverage. Our neighbouring countries, although were before the time in their regulations, however, they maintained the sanctity of the industry functioning. The Direct Sales and Direct Marketing Act 2002 of Thailand, the Multi-Level-Marketing Supervision Act 2014 of Taiwan, the Door-to-Door Sales Act of South Korea not only recognised the industry but also allowed generous slack in the system.
The implementation of the Direct Selling Rules will act as an inflection point in the growth trend of the industry. However, If the government wants to promote entrepreneurship at the grassroots level, the current norms of direct selling need to be amended and the direct selling business should be made reachable to the lowest income strata and women, which currently constitutes 74% of the total people involved in the industry. We hope with dialogue and actions we can resolve the only point in this revolutionising regulation.
Rajesh Mehta is a leading consultant & columnist working on Market Entry, Innovation & Public Policy. Uddeshya Goel is a financial researcher with specific interests in international business and capital markets. The views expressed are personal.