Direct selling moving on a progressive trend

Direct selling is one of the fastest growing non-store retail formats in India, recording double digit growth of more than 20% over the past five years.
Direct selling moving on a progressive trend

Off late, the direct selling industry has realised the need for reforms and regulations, as more and more international players are eyeing this booming industry. In a bid to address these emerging issue, FICCI-KPMG has recently released the 'Direct 2014' report, which indicates that the direct selling industry has the potential to create 18 million self-employment opportunities.

Direct selling refers to the selling of goods and services to consumers who are away from a fixed retail outlet, generally at their homes, workplace, through an explanation and demonstration of the products by sellers. It is one of the oldest modes of selling and is similar to the traditional consumer goods retail model.

History

According to the study, modern direct selling can be considered to have been kick-started in India in 1980s. The industry witnessed major growth post-liberalisation with many global players entering the Indian market. US-headquartered Amway was one of the first major global direct selling companies to enter India in the year 1995, which was followed by companies like Avon, Oriflame and Tupperware in 1996. Around the same time, Modicare was one the first few Indian companies to adopt this channel of distribution.

At present, the direct selling market in India is estimated to be around Rs 72 billion. Further, in addition to providing income opportunities, direct selling also imparts transferable skills in sales and management, which can be used outside the direct selling industry.

Elaborating on the potential of the industry, Sidharth Birla, President, FICCI, said, "The industry holds large potential not only for the economic, but also social development of India. With growth in the industry, it is projected to employ nearly 1.8 crore direct sellers, with almost 1.1 crore of them as women. The industry is also expected to contribute a tax of Rs 9,000 crore to the exchequer. Hence, it is important that the growing economy like India should encourage rightful emerging businesses by creating a favorable policy environment."

Regulatory challenges

As per the study, the direct selling industry in India has been facing a lot of challenges, which in a way are setting-up manufacturing facilities, dealing with import duties, etc. A daunting challenge for the direct selling industry in India is lack of regulatory clarity. Due to this, often direct selling companies are mistaken for fraudulent pyramid/ponzi schemes.

Besides, states like Andhra Pradesh, Kerala, Sikkim and Union Territories like Chandigarh, have on several occasions mistook legitimate direct selling companies with fraudulent players because of the absence of required regulatory clarification. Such uncertainty is impeding the growth and reputation of the direct selling companies in India.

In many cases, due to the absence of clarity, representatives of the direct selling companies have been harassed by the local police and state governments. Such incidences tend to hinder the growth of the industry and can have an adverse effect on consumer confidence.

Expressing his views on the misinterpretation on direct selling regulations, Keshav Desiraju, Secretary Consumer Affairs, said: "My Ministry is working towards creating a regulatory framework for the emerging industries like e-commerce and direct selling under our internal trade reforms agenda, through which we can help in distinguishing between the genuine and fraudulent players, and our key concern is to safe guard the interest of consumers."

Desiraju further said, "We are hopeful that the proposed changes to the Consumer Protection Act will strengthen consumer welfare. There is a need to differentiate direct selling from other fraudulent schemes masquerading in the market as direct selling. With internal trade falling under the Ministry of Consumer Affairs as per the allocation of business the Ministry seeks to play an important role in regulating activities which impact on consumers. The industry needs to have a regulator to look at its issues more closely and resolve them."

Market opportunity

Direct selling is one of the fastest growing non-store retail formats in India, recording double digit growth of more than 20 per cent over the past five years. In the year 2012-13, it has been estimated to contribute taxes of Rs 1,000 crore to the exchequer. Besides, the industry also has a significant impact on socio-economic parameters because of its nature. In less than two decades, since it took-off in India, it has provided self-employment opportunities to more than 50 lakh people in India as direct sellers.

Nearly 60 per cent of these direct sellers are women. The industry is empowering them with additional income and transferable skills. It also generates direct employment through manufacturers and other service providers involved throughout the value chain of the industry.

The industry has led to technology percolation and enhancement of many SMEs by association with international companies. Also, many direct selling companies have been in the forefront by actively contributing towards social activities.

The road ahead

Going forward, the industry has the potential to reach a size of Rs 64,500 crore by 2025 driven by growth in the consumer markets and increase in the penetration of direct selling to globally comparable levels. This will have a cascading effect on the socio-economic parameters associated with the industry. There will be commensurate capital investments in manufacturing and in technology acquisition.

The report highlights the need to bring regulatory certainty for the industry, which is mistakenly coupled with fraudulent money circulation schemes because of a lack of clarity in existing legislations. The report also lays out a roadmap for mitigating the regulatory challenge for the industry by recommending an immediate amendment in the governing legislation, followed by a clear definition and categorization as 'wholesale cash and carry trade' to smoothen FDI inflow, and an independent legislation and nodal ministry for the industry thereafter.

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