Various measures are also being taken to increase vigilance against violation of direct selling rules and other unscrupulous practices by the fast-growing industry, the people added.
“All companies operating in India through direct sales are required to provide a customer service number as well as details of their management with a valid email address and telephone number,” the first person said. “In addition, they will have to set up a consumer redress mechanism. .”
These rules will become mandatory after a thorough analysis of DoCA compliance and violations of direct selling companies.
Also read: The Good, Bad and Ugly of Direct Selling Businesses in India
The Consumer Protection Act 2019 provides consumers with safety in relation to defective products, unsatisfactory services and unfair trade practices. The main purpose of the law is to protect the rights of consumers by establishing authorities for timely and effective administration and resolution of consumer disputes.
Action planned against unscrupulous direct sellers
“The department has noticed that a significant number of direct selling companies, including high-end companies, are engaging in unscrupulous practices to promote their products to consumers, which is a cause for concern,” the second person said, adding that the DoCA plans to investigate complaints filed against direct selling companies to analyze violations of the Consumer Protection (Direct Selling) Regulations 2021.
“Based on the assessment of these complaints, an action plan will be put in place to ensure errant companies comply,” the second person said. Failure to do so will result in disciplinary action against them, under the provisions of the Consumer Protection Act.
Common unethical practices that direct selling companies indulge in include product misrepresentation, pyramid schemes, high-pressure sales tactics, exaggerated income claims, and a failure to protect consumer data.
“If necessary, the rules will be made stricter to prevent consumers from being exploited by the 'troublesome' schemes of direct selling companies,” the third person said. All three people spoke on condition of anonymity.
E-mailed questions to the secretary of consumer affairs and the ministry's spokesperson remained unanswered until going to press. Representatives of the Indian Direct Selling Association (IDSA) declined to comment on the matter.
What are the rules for direct sales?
The Consumer Protection (Direct Selling) Rules, promulgated in December 2021, state that such companies must make a self-declaration confirming their compliance with the provisions of these rules and claiming that they are not involved in any pyramid scheme or money circulation scheme.
Pyramid scheme refers to a fraudulent business model that recruits members through a promise of payments or services to enroll others in the system, rather than making investments or selling products.
Also read: The government notifies consumer protection rules and sets a 90-day compliance period
Ram Khanna, a representative of ConsumerVoice, a non-governmental organization working on consumer awareness, said if a company violates the guidelines, the government has a duty to enforce those standards with due diligence.
“The reality is that officials at the bottom often pave the way for defaulters in various ways,” says Khanna. “Direct selling rules must be strictly enforced as consumers are being exploited on a massive scale and these companies are not even afraid of it. the law.”
The Ministry of Consumer Affairs will also 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 IDSA estimates, the Indian direct selling sector witnessed a growth of over 12%, with gross industry turnover of ₹21,282 crore in 2022-2023.
Total turnover increased by ₹2,252 crore compared to 2021-22, which was partially affected by the pandemic. According to IDSA, the compound average growth rate (CAGR) of the direct selling industry between 2019-20 and 2022-23 was 8.3%.
In India, approximately 8.6 million people are self-employed in the direct selling sector, as stated in the IDSA report.