A report on the direct selling business released on Friday by a prominent think tank is expected to buttress the growing support for allowing foreign investment in all types of retail business.
The ?Socio-Economic Impact of Direct Selling: Need for Policy Stimulus? published by Icrier and the Indian Direct Selling Association has used data from a national survey to underline that direct selling ? the method where companies sell products to consumers bypassing supermarkets or grocery shops ? has reduced unemployment, particularly among women.
Amway, the top global direct selling brand, and Tupperware are the most visible face of direct selling in India.
The report shows that in 2008-09 and 2009-10, when the Indian economy was battling a growth slowdown, the number of direct sellers grew to 3 million from 1.8 million, or a growth rate of nearly 67%. Of these, nearly 70 % were women. At the same time, the sector grew at a rate of 17% in 2008-09 and at 24% in 2009-10.
The lead author of the report, Icrier professor Arpita Mukherjee, said direct selling has tremendous employment spinoffs. ?What is required now is to clarify the category of the sector to push more investment into the sector,? she said.
Mukherjee was referring to direct selling having been uncoupled from the category of wholesale trade by the department of industrial policy and promotion in its revision of FDI policy in April last year. As a result, there is an ambiguity in its definition. Equating it with single-brand retail will restrict FDI in the format to 51% of equity, while making it multi-brand will choke off FDI completely.
However, most direct selling companies are single-brand ones and would benefit if 100% FDI is allowed in a single brand, which, in addition to generating more employment, will ?increase sourcing from India, percolation of technology and branding?, says the report. Currently, several ‘back-door routes’ have been devised to get around the FDI limitations such as test-marketing, sourcing from SMEs, franchising, etc. This raises the need for transparent retail regulation that should be separate from FDI policy. According to the report, clubbing the two may lead to an undesirable outcome ?differential treatment for foreign and domestic companies.
Given that India is expected to be the fifth largest consumer market by 2025 with an expanding middle class, companies are trying to fill the gap between the growth in consumption and unsaturated market via various store and non-store retail formats. To this end, direct selling has re-emerged as a popular format of non-store retail. The overall direct selling market is expected to reach R71,200 crore by 2012-13 and is growing at 20% annually. At present, the market stands at around R49,400 crore.
Like retail, direct selling also falls under the purview of state legislation and is governed by a number of different regulatory bodies. The lack of coordination between them can create room for fraudulent practices to emerge. To this end, amending the Consumer Protection Act, 2002, will help protect consumers from being conned.
The report also says the fact that the sector doesn’t have entry and exit barriers, making it highly competitive, is a big positive ? removing the need for an independent regulator. But there must be a single nodal ministry, that is, a single point of contact for the industry at the centre for grievance redressal.
Thus, the overall finding of the study is that the socioeconomic benefits of this practice are numerous, be it in generating employment or empowering women, and given its high employment generation potential, policymakers must take into account these factors before they come to decisions.
