Bid to distinguish genuine companies from fly-by-night operators
The Government is working on a clear definition for multi-layer marketing and direct selling in the foreign direct investment (FDI) policy to remove ambiguities on the legal status of foreign companies operating in the sector.
This follows representations from global direct sellers, such as Amway, Oriflame and Tupperware, as members of the Indian Direct Selling Association (IDSA) seeking clarity on the FDI policy governing their operations.
“We are looking at how to clearly define multi-layered marketing and direct selling in the policy so that honest companies do not get clubbed with fly-by-night operators running Ponzi schemes and pyramid schemes,” a Department of Industrial Policy and Promotion official told Business Line.
The direct selling industry in India is valued at Rs 7,000 crore and is growing at over 10 per cent per annum.
In multi-layered direct selling, the company distributors sponsor new sellers who, in turn, bring in more suppliers. Sales credits are earned on the basis of products sold by the main distributors and their sponsored vendors.
Since the FDI policy is silent on multi-layered marketing and direct selling, such companies run the risk of being clubbed with fraudulent ponzi and pyramid schemes and getting penalised under the Prize Chit and Money Circulation Act, 1978. Last year, top officials of Amway India were arrested under the Act in Kerala.
“It is a big deterrent for foreign direct selling companies to operate in India as they may be judged on the same parameters as those running predatory pyramid schemes,” pointed out Arpita Mukherjee, Professor, ICRIER.
Mukherjee said the Government needs to come up with a proper regulation for multi-layered marketers and direct selling companies so that such companies get evaluated based on established guidelines.
Foreign direct selling companies in India are scheduled to meet DIPP officials later this month to give fresh inputs for the proposed FDI policy.