Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Reining in the Direct Selling Industry

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Direct Selling

Mains level : Direct Selling and related issues

The Government has notified the Consumer Protection (Direct Selling) Rules, 2021, that prohibits all direct selling entities from promoting pyramid schemes or money circulation schemes, while also providing for a mechanism for redressal of consumer complaints.

What is Direct Selling?

  • 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 a retail premises.
  • For example: Brands such as Amway, Herbalife , Oriflame and Modicare etc. directly sell their products through outlets. They are generally expensive.

What are the new 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.
  • 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.

How big is the Indian Direct Selling industry?

  • As per a report, the number of active direct sellers in the country stood at around 7.4 million in 2019-20.
  • The two big categories were ‘wellness & nutraceuticals’ – which accounted for 57% of the sales, followed by cosmetics and personal care which contributed 22% to the sales.

Whom do these Rules apply?

  • 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.

Why have they been notified now?

  • Fraud prevention: The guidelines aim for preventing fraud and protecting consumer interest. Earlier, these were not regulated under enforceable law.
  • Costly products: 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.
  • Coercive persuasion: They often tend to persuade consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers.
  • Providing legitimacy to DS: The Rules provide legitimacy to the industry and also help attract more foreign direct investment (FDI).

What do the rules say?

  • Registration: 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.
  • Self-declaration: 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.
  • Data storage within India: Additionally, such entities are required to store sensitive personal data within India and take steps to ensure the protection of such data.
  • Grievance redressal: 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.
  • Officer to ensure compliance: Every direct selling entity will need to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.
  • Restricted visits: A 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.

 

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