Direct selling industry hit by lack of regulatory system

Absence of a systematic policy that clearly defines the regulatory framework has curbed the growth of direct selling industry in Kerala, according to a Ficci-KPMG report.

The industry saw tremendous growth in the last decade in the state. But lack of a clear definition to differentiate legitimate direct selling from fraudulent schemes has stalled it ever since.

This has led to top industry players curtailing operations or discontinuing activities in the State, the study, ‘Direct Selling: Kerala,’ launched here on Friday said.

A glimmer of hope lies in the draft of the Kerala Multi-Level Marketing (Control and Regulation) Bill, 2013.

It lays down detailed guidelines for regulating direct selling activities, to ensure that business activities are conducted without any violations of provisions of the Prize Chits and Money Circulation Schemes Act.

Apart from the need for clearly defining direct selling, the report also laments the absence of a multi-level marketing regulatory authority, provisions for the protection of consumer interests and a welfare fund for the benefit of distributors.

Kerala has been a key market for the industry and was worth ₹70-₹75 crore in 2013-14. High literacy rate, increasing per-capita incomes, urbanisation and consumption-oriented population have helped growth.

The industry has provided employment opportunities of up to 90,000 with women constituting 58 per cent of the total in 2013-14.

With the positive intent on the part of the government and support, the industry could reach a size of ₹1,800-₹2,000 crore at a compounded annual growth rate (CAGR) of approximately 33- to 35 per cent by 2025.

This is likely to be driven by high economic development rates and rising demand for consumer goods in urban markets such as Thiruvananthapuram, Kochi and Kozhikode.

Considering the market potential the industry holds, the contribution to revenue in the form of indirect taxes is also expected to increase to approximately ₹190 crore to ₹200 crore by 2025.

The potential to provide self-employment opportunities is estimated up to 5.60 lakh while growing at a CAGR of 18- to 19 per cent by 2025.

The companies are expanding into tier II and tier III cities and rural areas, forgoing their premium tags and targeting mass segments by producing product sachets.

They also outsource manufacturing process to Micro, Small and Medium Enterprises (MSME) leading to growth and technology percolation. Kerala has also benefited significantly from their CSR initiatives.

Pan-India, the direct selling industry has grown from ₹4,100 to ₹7,500 crore in the last five years, and is further poised to occupy a dominant position in the international and domestic markets.

North Indian markets are in the leading position with a share of 29 per cent in the industry, followed by the South, East, West and North-East with 25 per cent, 18 per cent, 16 per cent and 12 per cent respectively.