Several measures are also being put in place to increase vigilance against violation of direct selling rules and other unscrupulous practices by the fast-growing industry, the people added.
“All firms operating in India through direct selling must provide a customer care number, and details of their management with a valid email address and phone number,” the first person said. “Besides, they will have to put a consumer redressal mechanism in place.”
These rules will become mandatory after a thorough analysis of direct-selling firms’ compliances and violations by the DoCA.
Also read: The good, bad, and ugly of direct selling firms in India
The Consumer Protection Act 2019 provides safety to consumers regarding defective products, dissatisfactory services, and unfair trade practices. The key objective of the Act is to protect the rights of consumers by establishing authorities for timely and effective administration and settlement of consumer disputes.
Action planned against unscrupulous direct sellers
“The department has noticed that a significant number of direct selling firms, including premier category firms, are involved in unscrupulous practices to promote their products among consumers, which is a cause for concern,” the second person said, adding that the DoCA plans to scrutinize complaints filed against direct selling companies to analyse the violations of the Consumer Protection (Direct Selling) Rules, 2021.
“Based on the assessment of these complaints, an action plan will be devised to ensure that errant firms comply,” the second person said. Failure to do so will result in disciplinary action against them as per the provisions enacted in the Consumer Protection Act.
Common unethical practices indulged in by direct selling firms include misrepresentation of products, pyramid schemes, high-pressure sales tactics, exaggerated income claims, failure to protect consumer data, among others.
“If required, the rules will be made more stringent to prevent consumers from being exploited by the ‘tricky’ schemes of direct selling firms,” the third person said. All three people spoke on condition of anonymity.
Queries emailed to the consumer affairs secretary and spokesperson of the ministry remained unanswered till press time. Representatives of the Indian Direct Selling Association (IDSA) declined to comment on the matter.
What are the direct selling rules?
The Consumer Protection (Direct Selling) Rules, notified in December 2021, state that such companies must make a self-declaration confirming their compliance with the provisions of these rules and asserting that they are not involved in any pyramid scheme or money circulation scheme.
Pyramid scheme refers to a fraudulent business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products.
Also read: Govt notifies consumer protection rules, sets 90-day compliance deadline
Ram Khanna, a representative of ConsumerVoice, a non-government organisation working in the field of consumer awareness, said that if any firm violates the guidelines, the government is duty-bound to enforce those norms with due diligence.
“The ground reality is that officers at the bottom often pave the way for defaulters through various means,” Khanna said. “The rules for direct selling need to be strictly followed, as consumers are being rampantly exploited and these firms are not even afraid of the law.”
The consumer affairs ministry is also set to launch a podcast that will help raise awareness about such malpractices through a storytelling format to explain the experiences of fraud victims and the resolution of their problems.
According to estimates released by the IDSA, the Indian direct selling industry witnessed growth of over 12%, recording a gross industry turnover of ₹21,282 crore in 2022–23.
Total sales increased by ₹2,252 crore compared to 2021-22, which was partially impacted by the pandemic. The compounded average growth rate (CAGR) of the direct selling industry stood at 8.3% from 2019-20 to 2022-23, according to IDSA.
In India, around 8.6 million people are actively self-employed in the direct selling industry, as stated in the IDSA report.