Reining in the Direct Selling Industry

Q Why is it in News ?

A 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.

Q What is Direct Selling?

A 

• 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.

Q What are the new rules?

A 

• 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.

Q How big is the Indian Direct Selling industry?

 A

• 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.

Q Whom do these Rules apply?

A 

• 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.

Q Why have they been notified now?

A 

• 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).

Q What do the rules say?

A 

• 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.