[Editorial Analysis] Reining in the Direct Selling Industry

Mains Paper 3: Economy
Prelims level: Consumer Protection (Direct Selling) Rules 2021
Mains level: Indian Economy issues

Context:

• The Government on December 28 notified the Consumer Protection (Direct Selling) Rules, 2021, that prohibits all direct selling entities such as Amway, Tupperware, Oriflame and Modicare, from promoting pyramid schemes or money circulation schemes, while also providing for mechanism for redressal of consumer complaints.

Application of the Rules:

• These Rules apply on all models of direct selling and all goods and services bought or sold through direct selling. Direct selling entities that are not established in India, but offer goods or services to consumers in India, will also need to comply with the newly notified Rules.

• Direct selling entities that are not established in India, but offer goods or services to consumers here, will also need to comply with the newly notified rules.

• Direct selling players have been given 90 days to comply with the Rules.

• The new Rules were primarily introduced to prohibit the promotion of pyramid and money circulation schemes by the direct selling industry.

• Apart from that, entities are now required to be registered in the country.

• Further, to provide a redressal mechanism for consumers, the Rules mandate that direct selling entities appoint grievance redressal officers who will put up their contact details on the website.

About Direct Selling industry:

• The Business Model: In Direct Selling, goods or services are directly sold to consumers through sellers who act as individual representatives of the direct selling entities, instead of retail premises.

• Prevalence: As per a report by Indian Direct Selling Association (IDSA), the number of active direct sellers in the country stood at around 7.4 million in 2019-20 – with almost equal number of male and female direct sellers, up from 5.7 million in 2018-19.

• Size of the economy: As per the latest data available, the Indian direct selling industry stood at around ₹1,67,762 million in 2019-20, growing about 28% from ₹1,30,800 million in 2018-19.

• Types of industry involved in direct selling: The two big categories were ‘wellness and nutraceuticals’ – which accounted for 57% of the sales, followed by cosmetics and personal care which contributed 22% to the sales.

‘Direct Selling Guidelines 2016’ for preventing fraud and protecting consumer interest.

• Limitations of 2016 guidelines: these were not enforceable by law.

• With powers conferred by introduction of the Consumer Protection Act, 2019, the Ministry has now notified the Consumer Protection (Direct Selling) Rules, 2021. These Rules are largely in line with the earlier guidelines with few additional compliance requirements.

New Regulations:

• Physical location necessary: Every direct selling entity with operations in India needs to be registered in the country, and have a minimum of one physical location as its registered office within India.

• The entities will need to make a self-declaration that it is in compliance with these Rules and is not involved in any pyramid scheme or money circulation scheme.

• Required to store sensitive personal data within India and take steps to ensure the protection of such data.

• Redressal mechanism for consumers: the Rules mandate that direct selling entities appoint one or more grievance redressal officers and put up their details such as name, telephone number and email address, on their website.

• Noda officer: Every direct selling entity will need to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.

• Data related to sellers: the direct selling entities are now required to maintain a record of all its direct sellers, including their identity proof, address proof, e-mail and such other contact information.

• ID Card necessary: direct seller will not visit a consumer’s premises without identity card and prior appointment or approval, or provide any literature to a prospect, which has not been approved by the direct selling entity.

• Return Policy: A direct selling entity or a direct seller cannot refuse to take back “spurious goods or deficient services” and provide a refund, or charge consumers any entry fee or subscription fee.

• No Pyramidal Market strategy allowed: They can also not persuade consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases.

• Monitoring to ensure compliance: Every State government, the Rules state, will set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.

Conclusion:

• These Rules will bring much-needed clarity for the sector, which has been dealing with a lot of speculations and allegations, particularly with regards to the promotion of pyramid schemes.

• The industry has stressed that it pushed for these rules as serious players do not indulge in pyramid schemes. It provides legitimacy to the industry, protects consumers from pyramid and money circulation schemes and also help attract more foreign direct investment (FDI).

———————————————

Prelims Questions:

Q.1) With reference to the Zero budget natural farming (ZBNF), consider the following statements:

1. It is a method of chemical-free agriculture drawing from traditional Indian practices.

2. It promotes soil aeration, minimal watering, intercropping, bunds and topsoil mulching and discourages intensive irrigation and deep ploughing.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: C

Subscribe to Get Weekly updates

Get daily current affair video, detailed current affairs PPT for quick revision and Free One Liner PDF directly in your inbox. Subscribe now to get this month's one liner for FREE.