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Direct Selling in Kerala

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457 views72 pages

Direct Selling in Kerala

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Sachu Salih

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Direct

selling:
Kerala
A global industry, empowering millions

KPMG.com/in | ficci.com
© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Contents
Foreword 01
Executive summary 03
Global direct selling market 09
Direct selling market in India 19
Direct selling in Kerala 25
Direct selling opportunities in Kerala: 2025 33
Overview of current regulations in Kerala 39
Challenges faced by the industry 45
The regulatory challenge, and the way forward 49
Myths surrounding the industry 57
Annexures 61

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
FICCI KPMG in India
With economic development and growing consumerism, Direct selling is one of the oldest, most-traditional forms
various store and non-store retail formats have evolved to of selling globally, involving direct interaction between
cater to the growing retail sector in India. The Indian direct the seller and the buyer. Today, it is a successful industry
selling market at INR75 billion (2013-14) is one of the fastest operating in over 100 countries globally with a market size
growing non-store retail formats, recording double digit of USD183 billion1.
growth of more than 16 per cent over the past four years.
The direct selling industry in India is estimated at INR75
The growing Indian market has attracted a large number of
billion (2013-14), and forms only around 0.4 per cent of the
Indian and foreign direct selling companies.
total retail sales. This is far lower than the industry’s market
While direct selling is a relatively new industry, it has share in other comparable economies (one-half of China
provided self-employment opportunities to more than and one-tenth of Malaysia)1. With the growth in consumer
80,000 people in Kerala, out of which nearly 58 per markets and an increase in its penetration to globally
cent are women. Besides providing additional income comparable levels, the direct selling industry has the
opportunities to direct sellers, the industry also generates potential to reach a size of INR645 billion by 2025 in India.
significant direct employment. A majority of the direct
With a high rate of economic development, the direct
selling companies outsource the production, packaging
selling market is growing in Kerala, especially in urban areas
and distribution of their products, thus generating indirect
like Thiruvananthapuram, Cochin and Kozhikode.
employment across the value chain while enabling the
development of the Small & Medium Enterprises (SME) The direct selling industry has contributed significantly
sector. The industry also contributes to the exchequer to women empowerment, skill development, technology
and generates taxes, and has the potential solution to percolation and growth of the SME sector, besides
several socio-economic challenges being faced by the contributing to the exchequer. In addition, the industry
country. Many direct selling companies have been actively also provides a viable means of alternative income, which
contributing to social activities. promotes self-employment. Over 80,000 people are already
associated with the industry as direct sellers in Kerala1.
However, there has been a lack of clarity on the legislations
governing this industry. We strongly believe that regulations With the functioning of the industry relying in individuals
should help clearly differentiate between fraudulent to accompalish sales, a number of fraudulent businesses
companies and legitimate businesses. have also tried to emulate the form. The industry recognises
this as one of the biggest challenges to its growth. There
We, at the direct selling sub-committee, give insights
is a need to revisit existing laws and bring about regulatory
into the issues pertaining to this labour intensive industry.
clarity to build an environment of trust in order to reap the
The sub-committee within itself has an advisory board
multiple benefits the industry has to offer.
comprising neutral and intellectual people.
The need of the hour is to sensitise the consumers and the
FICCI is confident that this report will provide insights and
stakeholders, as well as constantly lobby for appropriate
actionable recommendations for creating a conducive legal
legislation that would represent the interests of the industry.
environment for the industry.

Dr. A. Didar Singh Rajat Wahi 2

Secretary General, FICCI Partner and Head,
Consumer Markets, KPMG in India

1. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015,

Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What is direct Evolution of the
selling direct selling
Direct selling refers to the selling of
goods and services to the consumers
away from a fixed retail outlet,
market in India
generally in their homes, workplace, Modern direct selling can be
etc., through explanation and considered to have been started
demonstration of the product by direct in India with the establishment of
sellers. It is one of the oldest modes Eureka Forbes in 19821. The industry
of sales, and is similar to the traditional witnessed significant growth post-
consumer goods retail model. liberalisation with many global players
entering the Indian market. Amway
was one of the first major global direct
selling companies to enter India in
the year 1995, which was followed
by companies like Avon, Oriflame and
Tupperware in 1996. Around the same
time, Modicare was one the first few
Indian companies to adopt this channel
of distribution1.

1. Industry discussions, FICCI direct selling taskforce and KPMG in

India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct selling in Kerala
In 2014, the direct selling market in created project Shakti in 2001 to not distribution of their products, thus
Kerala was estimated to be in the only grow rural sales of its health generating employment across the
range of INR700-750 million2. Our and beauty care products but also value chain.
interaction with industry stakeholders provide income-generation avenues
e. Social initiatives: In terms of
suggests that the industry has created to rural women (called ‘Shakti
responsibilities towards society,
a positive impact on several social and Ammas’) in the process2.
direct selling companies have
economic parameters.
c. Development of the SME sector: several contributions to their credit
a. Additional income opportunities: Many direct selling companies rely in Kerala. The AMC India’s nutrition
Direct selling provides additional on Small and Medium Enterprises talks and Amway Opportunity
income opportunities to a large (SMEs) for manufacturing their Foundation’s national project for the
number of people and promotes products. They also rely on blind are well known for their social
micro-entrepreneurship. In FY14, ancillary support services such as impact3.
nearly 80,000-90,000 direct sellers packing, labelling, logistics and
f. Contribution to the government
are estimated to have engaged material supply. In many cases,
exchequer: The operating model
with the industry in Kerala, and this the direct selling companies
for direct selling generates tax
number is projected to increase impart the manufacturing know-
contributions to the government
further with the growth of the how, technology and processes
across its value chain. Total indirect
industry2. In addition to providing to enable the SMEs to produce
tax contribution by direct selling
income opportunities, direct selling quality products. The direct selling
industry to the government in FY14
also imparts transferable skills in companies also invest in providing
alone is estimated to be in the range
sales and management, which can the right equipment and machines
of INR70-80 million2.
be used outside the direct selling to the SMEs for production. Driven
industry as well. by these initiatives, many SMEs Going forward, the industry has the
have now developed capabilities to potential to create a significant social
b. Women empowerment: Direct
cater to the needs of other Multi and economic impact in Kerala. Our
selling offers self-employment
National Companies (MNCs) and estimates suggest that the industry
opportunities to a large number
have commenced supplies to them, has the potential to reach a size of
of people, especially women. The
promoting India as a manufacturing around INR18-20 billion by 2025,
industry provides women the
destination. driven by growth in consumer markets
flexibility to manage their time and
and increase in the penetration
balance their work and personal d. Employment generation: Besides
of direct selling. This is, however,
lives. In FY14, it provided self- providing additional income
contingent on creating an enabling
employment to nearly 45,000-50,000 opportunities to direct sellers,
environment for the industry and
female direct sellers (58 per cent of the industry besides generates
mitigating some of the challenges it
the total direct seller workforce in significant direct employment
faces today.
the state)2. Several companies work opportunities. A majority of the
towards women empowerment. For direct selling companies outsource
example, Hindustan Unilever (HUL) the production, packaging and

Market potential of INR18-20 billion by 2025

2. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/ Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling
IndustryReports.html, 22 September 2015, Industry discussions, taskforce and KPMG in India analysis 2014-15
FICCI direct selling taskforce and KPMG in India analysis 2014-15
3. Industry discussions, FICCI direct selling taskforce and KPMG in
India analysis 2014-15

Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling
taskforce and KPMG in India analysis 2014-15

Potential to economically empower 320,000-340,000 women

Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct
selling taskforce and KPMG in India analysis 2014-15

Ability to contribute INR1,900-2,000 million to the exchequer

Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling
taskforce and KPMG in India analysis 2014-15
Note: Impact of GST has not been considered for the opportunity assessment of the industry and its contribution to the exchequer.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Challenges: Direct selling in Kerala
Similar to the traditional consumer A separate policy framework for the
industries, the direct selling industry direct selling industry could clear the
faces challenges in terms of setting blurred lines between ethical industry
up manufacturing facilities, dealing players and impersonators, and go
with import duties, etc. However, one a long way to help regain consumer
of the most daunting concerns for confidence.
the direct selling industry is lack of
We recommend the following road-
regulatory clarity. Due to this, direct
map which can be considered by the
selling companies are often mistaken
government/regulators to help benefit
for fraudulent Pyramid/Ponzi schemes.
this industry in the future.
To provide a conducive and sustainable
operating environment in India for the
companies operating in this industry, a
series of reforms are required ranging
from immediate short-term reforms
in the nature of certain amendments
in the existing Acts/policies to long-
term measures of enacting a specific
governing legislation for the sector.

Road map to help benefit the direct selling industry

Long-term
• Recognition of Ministry of Consumer Affairs
as nodal ministry
• Enactment of a comprehensive sector specific
legislation
Medium-term
• Amendment in PCMCS Act

Short-term
• Draft Kerala MLM Bill, 2013 may be enacted
• Formulation of standard operating procedures
for law enforcement agencies in each State

0 – 6 months 6 months – 3 years Beyond 3 years

Source: FICCI Direct Selling taskforce, Industry discussions and KPMG in India analysis 2014-15

1 Since the PCMCS Act does not explicitly address schemes which involve genuine
sale of products or services, some jurisdictions have attempted to read into these
clauses of the Act. An amendment in the PCMCS Act is therefore needed to make
the distinction clear between direct selling, including MLM plans involving the
genuine sale of products and fraudulent pyramid, money circulation schemes.

Formulation of standard operating procedures

2
In order to do away with the prevailing operational uncertainty, an immediate action
needs to be taken at the state level. The need of the hour is the development of
standard operating procedure for law enforcement authorities to be followed in
cases where a complaint is filed against fraudulent MLM schemes. This ground
level initiative shall help avoid undue harassment of genuine players of the industry
and restore public confidence.

Formulation of state-specific legislation

3 The Kerala State government should enact the draft Kerala State Multi-Level
Marketing (Control and Regulation) Bill, 2013.

Need for a governing ministry and legislation

4
At present, direct selling falls under the purview of state legislation and is governed
by multiple ministries/departments at the centre, state and local levels and this has
resulted in multiple regulations governing this sector. This should be streamlined
and a single ministry should be nominated at the centre, which will develop
regulatory framework for the Industry.

Source: KPMG Analysis, Press Trust of India, 18 March 2011 issue, Industry Discussions, FICCI Direct Selling Task Force

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct selling Direct selling is a dynamic and rapidly-
expanding channel of distribution for
marketing of products and services.
Despite its differences, in many ways,
direct selling is similar to traditional
consumer goods retail. In both cases:

is essential y While there is no universal definition

of direct selling, different countries,
associations and individuals define
• the distributors/direct sellers can
earn a commission, when the sale

marketing of the sector differently. It can be broadly

understood as ‘selling of goods and
of the product takes place.
• earning of sales commission may
be based on one’s own sales as

products and
services to consumers away from a
fixed retail outlet, generally in their well as on the cumulative sales of
homes, workplace, etc., through the group built by the seller, similar
to commissions in the traditional

services directly explanation and demonstration of

the product by the direct sellers.1
Direct sales generally benefit from
sales environment.

to consumers the explanation and demonstration

of products made by an independent
direct sales person to the consumer.

in a person-to- Being a specialised channel of

distribution, which is neither wholesale
nor retail, it covers both business-to-

person manner, business and business-to-consumers

aspects.

away from
permanent retail
locations.1

1. Discussions with National Law School, Industry discussions,

WFDSA annual report 2015, WFDSA, http://www.wfdsa.org/
10
library/index.cfm?fa=publications, 22 September 2015, FICCI
Direct Selling taskforce, KPMG report- Direct selling: A global
industry empowering millions in India, 2014

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct selling is Various forms of networking schemes
Globally, the direct selling industry has What is striking about these schemes
undergone substantial changes since is that while they are old forms of fraud,

different from the 1970s. Around that time, there

was a proliferation of multiple new
direct selling companies and one-to-
modern technology has vastly multiplied
their potential to harm citizens across
the globe. The internet in particular

chit funds and one marketing became a common

marketing technique. Unfortunately, the
rise in legitimate MLM compensation
offers pyramid builders a multi-lane
highway to worldwide recruits in
virtually no time. Further, globalisation

Ponzi schemes plans was accompanied by a surge in

pyramid schemes that played off the
popularity of MLM plans or network
coupled with the newly emerging
market economies has provided a new
outlet for pyramiding.
sales and paid more attention to
In this section, we have outlined the
recruiting people than selling of actual
primary definitions of various forms of
goods.
prevalent unfair trade practices and laid
down certain parameters to distinguish
between ‘fly by night operators’ and
‘legitimate businesses’.

Pyramid schemes Ponzi schemes Chit fund schemes

Pyramid schemes are prevalent in multiple Popularly known as ‘Peter-to-Paul’ With no underlying product and based
forms, promise consumers/investors large schemes, a Ponzi scheme is centred around on more or less similar lines like a Ponzi
profits based primarily on recruiting others continuous recruiting and the promoter scheme, a chit fund is a kind of savings
to join their programme, not based on generally has no product to sell and pays scheme. Under this scheme, a person enters
profits from any real investment or real sale no commission to investors who recruit into an agreement with a specified group
of goods. Two major signs that a product new ‘members’. Instead, the promoter of persons, everyone of them commits to
is being used to disguise pyramid schemes collects payments from a stream of people, contributing a certain sum of money by way
are: promising all the same high rate of return of periodical instalments over a definite
• Large payments required to join; and on a short-term investment with no real period. Each subscriber shall, in his/her
investment opportunity. turn, as determined by lot or by auction or
• Compensation paid for recruiting by tender or in such a manner as may be
without regard to end sales specified in a chit agreement, be entitled to
(‘headhunting fees’). the prize amount.
Though often misused by promoters, chit
fund schemes are not always fraudulent
and may be conducted by organised
financial institutions within the letter of
the law.

Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

B2B, B2C, single Face-to-face explanation Non store

level or multi-level and demonstration retailing format

May offer free/personal May have websites or

sample testing facility – catalogues – products sold
high quality products by direct selling only

Source: FICCI Direct Selling taskforce, Industry discussions

Key factors differentiating genuine direct selling schemes from fraudulent ones

No commission No investment With every down line Does not require Remuneration/
for ‘upfront head fee from new created – Interaction dealers to buy large commission
hunting’ recruits with the customer is amount non-returnable to distributors/
a MUST inventory representatives linked
to sale of products

Source: FICCI Direct Selling taskforce, Industry discussions

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Global direct selling market in 2014-
15 was worth USD183 bil ion and
employed around 100 mil ion people
worldwide
Global direct selling market
Market size
The global direct selling industry is a
USD183 billion industry. The industry
has witnessed an overall growth of 8.5
per cent over the past five years. The
industry saw a robust growth of 19 per
cent in 2011 over 2010, post which the
industry grew at a lower rate of 5 per
cent in subsequent years due to the
global economic slowdown. However,
the long-term growth prospects of the
industry remain robust.
Source: WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015

Number of direct sellers

The direct selling industry
benefits from in-person contact
for the demonstration and sale of
products and therefore provides
entrepreneurship opportunities
to a large number of people. The
opportunities in the industry has
grown by a CAGR of 6 per cent in
the last five years and the number of
direct sellers have increased to 100
million direct sellers in 2014 from 79
million direct sellers in 2010.
Source: WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015

Gender-wise participation in the

industry
As of 2014, 75 per cent of the
industry comprised of females. Direct
selling has given women, who find it
difficult to work away from home, an
alternative earning opportunity in their
homes, enabling them to maintain a
work-life balance.

Source: WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Asia-Pacific is the largest direct selling region in the world,
followed by North America and Europe
Major regions, 2014

Europe:
33 billion
North America: 18% share
36 billion
20% share
Asia-Pacific:
82 billion
45% share

South and Central

America:
31 billion
17% share Africa and Middle East:
1.2 billion
0.7% share

Asia-Pacific Americas Europe, Middle East, Africa

• Asia-Pacific is the largest market for • The Americas account for 37 per cent • Europe accounts for an 18 per cent
direct selling with a 45 per cent share share in the global market and engages share in the global direct selling market
in the global direct selling market. Asia- ~33 million people as direct sellers. and has grown at a CAGR of 3.4 per
Pacific has also been the fastest growing • The U.S. and Canada are billion dollar cent from 2011 to 2014. It engages ~14
region in the world, growing at a CAGR markets in North America engaging 19 million people as direct sellers.
of 8.4 per cent to reach USD82 billion in million people as direct sellers. • Western Europe accounts for nearly 75
2014 from USD64 billion in 2011. • South and Central America has been per cent of the total market in Europe.
• The direct selling industry in the region growing at a CAGR of 7.8 per cent France, Germany, Italy and the U.K. in
engages ~51 million people as direct between 2011 and 2014. Brazil is the Western Europe and Russia are billion
sellers in 2014. largest market in South and Central dollar markets.
• Japan, China, Korea, Malaysia, Taiwan, America accounting for a 42 per cent • The Middle East and Africa is a small
Thailand, Australia, Philippines, share followed by Mexico, Colombia, market for direct selling, accounting
Indonesia and India have billion dollar Peru and Argentina which are also less than 1 per cent share of the global
markets in this region. billion dollar markets. market.
15

Source: WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015, KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Single-level and multi-level marketing are the prevalent
models in the direct selling industry
Operating model
Single-Level Marketing (SLM)
Single-level marketing rewards the
sellers for their personal sales activity.
They cannot sponsor any other
distributorship or sales personnel.2
Company
Income comes only in the form of
a commission, or bonus, or retail
markup, i.e., they receive payments
through the sales they make. Direct seller

A direct seller buys products from

the parent company and sells them
directly to his/her customers. Home-
based business people have been
Customer Customer Customer
pursuing single level marketing for
years. Single-level marketing is most Source: WFDSA annual report 2015, WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015, ICRIER, Direct
suited for those sales people whose Selling News, Industry Discussions, FICCI Direct Selling Task Force, KPMG in India Analysis, 2015.

focus lies on the product and service.

Multi-Level Marketing (MLM)

In the MLM compensation plan, each
direct seller recruited can potentially
recruit new distributors and create
a down line of direct and indirect
distributors/sellers. Distributors Company
purchase products to sell to the
consumers. They receive commissions
and bonuses on the sales made by Direct seller
them and the sales made by their
down line direct sellers and retail
markups.

Customer Downline Customer Downline

Direct seller Direct seller

Customer Downline Customer Downline

Direct seller Direct seller

Customer Downline Customer Customer Downline Customer

Direct seller Direct seller

Source: WFDSA annual report 2015, WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015, ICRIER, Direct
Selling News, Industry Discussions, FICCI Direct Selling Task Force, KPMG in India Analysis, 2015.
16

2. Industry discussions, FICCI direct selling taskforce and KPMG in

India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Person-to-person selling is the
dominant form of selling witnessed
in the direct selling market
Methods used for selling
While some direct sellers may be
employees of a direct sales company,
authorised to act for the company in
business matters, most direct sellers
are independent business operators
or self-employed – they enjoy the
advantage of deciding when and how
much time will be devoted to selling
products.

Traditional direct selling methods

include:

• Person-to-person marketing
Source: WFDSA, http://www.wfdsa.org/library/index.cfm?fa=publications, 22 September 2015
• Party Plan Groups

Person-to-person is the most popular

amongst direct selling companies
followed by Party Plan Groups.

Person-to-person (P2P)
A majority of the direct sales around the globe takes place through person-to-person
contact. This method is most widely used by direct selling companies.
Person-to-person direct selling can be defined as a one-on-one interaction between the
sales person and the customer in which a product is promoted for sale by the former to
the latter. This method of direct selling can use both single-level and multi-level marketing.

Party Plan Groups

The party plan is a method of direct selling in which social events are organised where
products and services are promoted and offered for sale.
Direct selling through party plan mostly uses multi-level marketing. Sales people approach
other people to host events during which the products are demonstrated. In return,
the host is given a part of the revenue from the goods sold. The sales person is paid a
commission on the sales or on the sales made by the sales people recruited by him/her.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Amway, Avon and Herbalife are the top three direct selling
companies accounting for 20 per cent of the global
direct selling market
Top 20 direct selling players in the world

Rank Company name Country Year Revenue Markets Distributors Employees Sales Compensation
founded 2013 (million) (‘000s) method structure
(USD
billion)

1 Alticor (Amway) U.S. 1959 11.80 100 3 21 P2P MLM

2 Avon Products Inc. U.S. 1886 9.95 100 6 36 P2P MLM

3 Herbalife Ltd U.S. 1980 4.80 91 3 7.5 P2P MLM

4 Vorwerk & Co. KG Germany 1883 3.70 76 0.6 12 P2P and MLM
Party Plan

5 Mary Kay Inc. U.S. 1963 3.60 35 3 5 P2P and SLM

Party Plan

6 Natura Cosmetics SA Brazil 1969 3.20 7 1.6 7 P2P MLM

7 Nu Skin Enterprises Inc. U.S. 1984 3.18 53 1.3 1.2 P2P MLM

8 Tupperware Brands Corp U.S. 1946 2.67 100 2.6 13.5 P2P and SLM and MLM
Party Plan

9 Belcorp Ltd. Peru 1968 1.96 16 0.9 9 P2P and SLM and MLM
Party Plan

10 Oriflame Cosmetics SA Luxembourg 1967 1.95 66 3.5 7 P2P MLM

11 Primerica Inc. U.S. 1977 1.27 2 0.1 2 P2P MLM

12 Ambit Energy U.S. 2006 1.20 1 0.25 0.6 P2P MLM

13 Telcom Plus U.K. 1996 1.10 1 0.05 0.7 P2P MLM

14 Stream Energy (Ignite Inc.) U.S. 2004 0.87 1 0.26 0.2 P2P MLM

15 Yanbal International Peru 1967 0.85 10 0.4 6 P2P MLM

16 Miki Corp. Japan 1966 0.78 3 NA 0.3 NA NA

17 Thirty-One Gifts U.S. 2003 0.76 2 0.12 1.7 Party Plan MLM
and Group
Sales

18 Blyth Direct Sales Group U.S. 1973 0.75 21 0.1 1.2 Party Plan MLM
and Group
Sales

19 USANA Health Sciences U.S. 1992 0.72 19 0.27 1.4 P2P MLM

18
20 CAN Inc. U.S. 1993 0.70 23 0.2 1.5 P2P MLM

Source: Direct Selling News Website, 12 August 2015, KPMG in India Analysis, 2015.

market in India commenced in 1982 when Eureka

Forbes was established as a result
of a joint venture between Shapoorji

took off in 1990s Pallonji Group’s Forbes & Company

Ltd. of Mumbai and Electrolux of
Sweden.1 The industry came into

with the influx of existence in early 1990s soon after

the country opened up to the global
market.

the large global The industry witnessed major growth

post liberalisation with many global

direct selling players entering the Indian market.

Amway was one of the first major
global direct selling companies to

companies enter India in the year 1995, which

was followed by companies such
as Avon, Oriflame and Tupperware

looking to tap in 1996. Around the same time,

Modicare was one the first few Indian

the Indian
companies to adopt this channel of
distribution.1

opportunity

1. Industry discussions, FICCI direct selling taskforce and KPMG in

India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Amway started
a manufacturing
facility in Tamil
Nadu
Market size –
Avon set
Evolution of direct selling in India

INR75 billion
Avon, Oriflame up its first
and Tupperware manufacturing
entered India, base in India
IDSA was
established
Amway entered
Direct selling India
market came
Eureka
into existence
Forbes was
established

1982 1990 1995 1996 2010 2014 2016

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

Even though a huge chunk of Indian However, currently the industry

direct selling companies initially is facing many challenges in India.
started in South India, today many As India lacks a systematic policy
of them have pan India operations. that clearly defines the regulatory
In terms of revenue generated in framework of the industry. There is
Maharashtra, Tamil Nadu, Kerala and no clear definition for legitimate direct
Andhra Pradesh have the highest selling to differentiate it from Ponzi/
shares.3 Recently, the industry Pyramid Schemes attempting to
witnessed greater growth in the disguise themselves as direct selling
Eastern part of the country and in structures. As a result of the lack
many tier II and III cities with direct of clarity, the number of fraudulent
2. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/
selling companies trying to reach out activities in the industry has increased IndustryReports.html, 22 September 2015, Industry discussions,
FICCI direct selling taskforce and KPMG in India analysis 2014-15
to customers in markets which have and legitimate direct selling is
3. Industry discussions, FICCI direct selling taskforce
remained untapped thus far. being confused with Ponzi/Pyramid
Schemes.3
The direct selling industry in India is
a INR75 billion market today and is
dominated by the organised players
contributing ~95 per cent to the
market.2 The market has grown to
become a key channel for distribution
of goods and services in the country,
specially for health and wellness
products, cosmetics, consumer
durables, water purifiers and
vacuum cleaners. However, it is still
undeveloped as compared to global
peers and the variety of brands and
products available in the country are
lower than those in other economies.

Going forward, the growth of the

industry is likely to be majorly driven
by expanding markets and a strong
consumer base increasingly looking
21 for quality products that add value, and
are willing to pay a premium.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The direct selling market in India has
grown at a CAGR of 16 per cent over
the last five years from INR41 bil ion in
2009-10 to INR75 bil ion in 2013-14
Direct selling market size in India

Source: IDSA Reports on Direct Selling 2009-2014, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, PHD Chamber, Direct
Selling News, Industry Discussions, FICCI Direct Selling Task Force

The direct selling market in India has In states such as Andhra Pradesh,
grown at a CAGR of 16 per cent over Telangana and Kerala, the direct selling
the past five years to reach INR75 business has been impacted due
billion in 2014. The market grew at a to a lack of regulatory clarity. There
lower rate of 4 per cent in 2013-14 due is a need for the central as well as
to a slowdown in the industry. Lack of the respective state governments to
clarity on state regulatory issues and take the lead in coming out with a
unclear laws pertaining to the industry comprehensive policy for the industry,
have significantly impacted the which could enable the industry to
working environment of major industry grow multifold over the next few years,
players. and also create direct and indirect
employment.
The Indian direct selling industry is
well poised to occupy an important
position in the international and
domestic markets. However, there
are many issues and challenges which
remain bottlenecks for the growth of
Indian direct selling industry.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
North India is the largest market for direct selling
followed by the South
Region-wise direct selling market

North North East

North: 29% share; 12% growth North East: 12% share; 14%
North India is the largest region by market size and growth
accounted for INR22 billion in 2013-14. Lucknow, North East is currently the smallest
Ludhiana and Delhi generate the maximum sales in the market for direct selling. However,
region. Other key cities include Bhopal, Chandigarh and over the past few years, growth
Allahabad. has picked up in the region with
efforts from industry players. It
has recorded the highest growth
rate of 14 per cent in India with
revenue of INR9 billion in 2014. Key
cities in the region include Itanagar,
Guwahati and Shillong.

East
West East: 18% share; 10% growth
West: 16% share; 11% growth This region contributed around
West India is a relatively smaller INR13.4 billion to the gross revenue
market compared to the Northern in 2013-14 and grew at around 10
and Southern regions. Direct per cent. The largest direct selling
selling sales in this region are markets are Patna and Kolkata
driven by Mumbai and Jaipur followed by Ranchi, Bhubaneshwar
followed by other key cities such and Jamshedpur. With unexploited
as Ahmedabad, Surat and Pune. potential in the eastern region,
Collectively, the region recorded companies are optimistic about
revenues for INR12 billion in the growth prospects in the future.
year 2013-14.

South
South: 25% share; 13% decline
South holds the second highest share for the direct selling industry and
accounts for INR19 billion in revenue in 2013-14. However, its share has fallen
along with a negative growth rate in recent times given the unfavourable
business environment (lack of regulatory clarity leading to litigation on direct
23 selling companies). Bengaluru, Chennai and Hyderabad are the largest direct
selling markets in the South.

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and KPMG in India analysis 2014-15

worth INR700-750 mil ion in 2013-14

State overview South India has been a key market for about 7 per cent of India’s total
for direct selling companies in India direct selling industry.
Kerala direct selling market particulars with many of them starting their
However, the industry has been in
operations in this region. The region
State Kerala
a state of constant decline over the
has witnessed reasonable growth in
past five years, mainly due to a lack of
direct selling over the past few years
Capital Thiruvananthapuram clarity on the policy for direct selling.
and contributes around 25 per cent to
The lack of regulatory clarity has led
the overall Indian direct selling market
Population (2011 census) 33.4 million
to the inability of law enforcement
in 2014.1
authorities to differentiate legitimate
NSDP per capita (2013) INR88,000
In Kerala, the direct selling industry direct selling from illegal pyramid
has been in existence for several years. schemes. As a result, the direct
The industry witnessed a decade of selling industry size had fallen to
Direct selling market ~ INR700-750 million
(FY14)
rapid growth till 2010 driven by the about INR700-750 million in FY14 and
high literacy rate, one of the highest contributed only around 1 per cent
per capita incomes in the country, to the overall direct selling market in
No. of direct sellers ~ 80,000-90,000
(FY14)
high rates of urbanisation and a India.1
consumption-oriented population. As
Market Growth potential INR18-20 billion However, there is a glimmer of hope
a result, the direct selling market in
(2025) with the state government drafting
Kerala had reached its peak size of
the Kerala State Multi-Level Marketing
Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/ about INR2,900-3,000 million by FY10
IndustryReports.html, Industry discussions, FICCI direct (Control and Regulation) Bill, 20131
selling taskforce and KPMG in India analysis 2014-15, 22 and single handedly accounted
September 2015 which lays down detailed guidelines for
regulating direct selling or multi-level
marketing activities, particularly to help
ensure that such business activities
are conducted without violating the
provisions of the PCMCS Act.

Given the positive intent of the state

government, the direct selling industry
has strong long-term potential for
growth in Kerala and is expected
to reach a size of INR18-20 billion
by 2025. This growth is likely to be
driven by the high rate of economic
development in the state coupled
with a high human development
index, rising demand for consumer
goods especially in urban markets
like Thiruvananthapuram, Cochin, and
Calicut, and the potential to increase
the penetration of direct selling to
globally comparable levels.1

1. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/

IndustryReports.html, 22 September 2015, Industry discussions,
FICCI direct selling taskforce and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The direct selling industry has generated large number of
self employment opportunities in Kerala
Key players
The major players operating in Kerala demonstration with the customers
are Amway, Modicare, K-Link and such as health and wellness products,
DXN. The direct selling industry spans cosmetics and personal care products
across a diverse range of products. dominate the direct selling market in
However, specialised products Kerala.
requiring one-on-one interaction and

Market size

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and
KPMG in India analysis 2014-15

Self employment opportunities

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and
KPMG in India analysis 2014-15

The direct selling industry provided selling industry in the state. However, attributed to regulatory concerns
self employment opportunities to the size of the direct selling and actions taken against the direct
around 170,000-180,000 people in community has declined in the recent selling firms. Consequently, a number
27 Kerala in FY10 which contributed past. In 2014, it provided employment of leading industry players such as
significantly to the total workforce in opportunities to around 80,000- Amway, Modicare, K-Link and DXN
Kerala. The Kerala government has 90,000 individuals. As per industry have either curtailed their direct selling
also recognised the employment discussions with IDSA and direct operations or have completely stopped
generation potential of the direct selling firms, the drop can be mainly direct selling activities in Kerala.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct selling market in Kerala comprises of around 58
per cent women.
Industry employs a large Gender-wise break up of direct sellers (per cent)
number of women
The direct selling industry in Kerala has
contributed significantly towards the
social and economic empowerment of
women by providing self-employment
opportunities to around 45,000 -
50,000 women or around 58 per cent
of the total direct sellers in FY14. Our
research indicates that the women
employed in direct selling not only
become financially independent, but
also gather sales and marketing skills
which can be leveraged across multiple
industries. These women gradually
become more conscious and aware of Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and
KPMG in India analysis 2014-15
their rights, making them capable of
decision making. Moreover, the unique
work schedule, flexibility of direct
selling allows them to strike a balance
between their work and personal lives.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct selling companies have also contributed towards
the development of direct sellers by building training
infrastructure
Contributions to training and infrastructure development2
Modicare to these trainings, Success Centers serve as the main center of Amway’s
Modicare has set up multiple training double up as touch points with the activities in the state. The direct
centers called ‘Modicare Success company and provide a venue for the sellers collect Amway products from
Centers’ in Kerala. These centers customers to get introduced to the the PUCs and also check their own
conduct regular training programmes entire range of products the company performance. These centers provide
to educate new joinees about the has to offer. in-depth information on new products
products and their usage. Regular Amway thus developing the direct seller’s
training is also conducted for all understanding of new introductions.
Amway has established ‘Pick Up
employees to help them learn and These PUCs also provide unlimited
Centers’ (PUCs) in Kerala and also has
improve upon their communication, free access to training material on skill
a local ordering center in Kozhikode.
leadership and selling skills. The development which is crucial for any
The PUC model developed by Amway
company has appointed a special team direct seller.
not only provides infrastructure for
of trainers who conduct trainings from storing the company’s products but
time-to-time to make it convenient for also the opportunity for customers
all direct sellers to attend. In addition to touch and feel them. These PUCs

2. FICCI direct selling taskforce and KPMG in India analysis 2014-15,

Industry discussions

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Potential benefits - Socio-economic
impact of the industry
Opportunities for self employment and women empowerment

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and
KPMG in India analysis 2014-15

As mentioned earlier, the industry Increase in product reach to tier II, III cities and rural areas
offers self-employment opportunities
Direct selling companies are ‘Bottom of the Pyramid’ customers.
to a large number of people, especially
increasing their reach to tier II and This includes selling smaller pack sizes,
women. Direct selling gives women
III cities and rural areas of Kerala to affordable variants of flagship brands,
the flexibility to manage their time
increase both awareness about and as well as single serve sachets. For
and balance their work and personal
adoption of their products. Some instance, Amway has introduced
lives. The industry also offers
direct selling companies are also sachets of shampoos and conditioners
financial independence to women
foregoing their premium tag and to provide high quality hair care
and enables them to take better
adopting value positioning in order products to customers in the low
care of their families. The industry
to make their products affordable to income group.3
in FY14 employed nearly 45,000 -
50,000 women or about 58 per cent
of the total direct sellers in Kerala.
Direct selling companies have also
championed social programmes aimed
at benefiting local communities in
the state. For instance, in 2008, Avon
India in association with the Avon
Foundation started Breast Cancer
Crusade to promote education and
awareness about breast health in
the country, including Kerala. Avon’s
mission is to provide more women,
particularly those who are medically
under-served, with information
about breast cancer, and with direct
access to early detection services.
The Avon Foundation, responsible for
the company’s charity activities, also
awards grants globally to educate
30
women about breast cancer, and
recommends that they get clinical
breast exams.3

3. Industry discussions, FICCI direct selling taskforce

Many companies including Modicare and Amway names ‘Smooth’ and ‘Velocity’. These brands included
are expanding into tier II and III cities and rural products like shaving lotion, after shave, body spray
areas. The strategy adopted by the direct selling among others and were offered by the company at a
companies in India to increase rural focus involves lower price range compared to similar products sold
the companies to forgo their premium tags and target by other companies.
mass segments by producing product sachets. This
Amway
marketing method has effectively enabled companies
to build trust in smaller towns and villages. With an aim to provide its clientele with products at
a lower price bracket, Amway launched sachets of its
Modicare Satinique shampoos and conditioners priced INR5.
Modicare doubled its salesforce to 250,000 direct They also plan to launch two-in-one products such as
sellers in 2011 and invested INR500 million to develop shampoos and conditioners to further their reach in
products and open more centres across the country, the market.
for penetrating the tier II, III cities and rural markets.
It launched a new range of products under the brand

Source: Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

Sourcing from SMEs leading Contribution to the exchequer

to growth and technology
percolation
Several direct selling companies in
India outsource their manufacturing
process to contract manufacturers
which are generally Micro, Small
and Medium Enterprises (MSME) to
produce products domestically.
As of 2011, two thirds of the products
sold by direct selling companies were
sourced through MSMEs4.

In many cases, direct selling

companies impart the manufacturing
know-how, technology and processes Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI direct
selling taskforce and KPMG in India analysis 2014-15
to enable the SMEs to produce
quality products. Direct selling
companies also invest in providing The direct selling industry generates recent past, leading to reduced tax
the right equipment and machines to tax contributions to the government contributions. The total tax contribution
the SMEs for production. Driven by across its value chain. The industry by direct selling industry to the Kerala
these initiatives, many SMEs have contributed significantly to the government in FY14 is estimated to be
now developed capabilities to cater exchequer during FY11. However, in the range of INR70-80 million.4
to the needs of other MNCs and due to regulatory concerns and
have commenced supplies to them, negative market sentiments, the
promoting India as a manufacturing industry’s revenues declined in
destination.4

4. Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Contributions to social causes Contribution from direct selling
The direct selling industry has made companies is targeted at social causes
several notable contributions to such as health and human services,
social causes across the country. In environmental protection, women
FY13, approximately four out of every empowerment and children protection
five direct selling companies in the and education rights. Kerala has also
organised sector were involved in CSR benefitted from such CSR initiatives by
activities.5 the direct selling companies.

Child education through CSR: Amway

Amway Opportunity Foundation (AOF) has been blind children throughout Kerala. It had partnered
working to enable under privileged children with a with Rajiv Gandhi Foundation (RGF) to set up 10
special focus on the blind. Under its national project village libraries in Wynaad district. These libraries will
for the blind, AOF has set up vocational computer be provided with books, furniture and newspapers.
centres at Thiruvananthapuram which provide The foundation also imparted trainings to the village
specialised computer literacy oriented training to the librarians and supervisors so as to effectively manage
visually challenged. In addition to vocational training the library systems. The aim was to make these
in IT, the centre provides personality development libraries self sustainable after the initial support from
and various soft skill modules to the students. The the foundation.
AOF foundation has distributed 1000 Braille kits for

Spreading awareness on nutrition: AMC India

As a part of its CSR Activity, AMC India regularly AMC India also distributes free of cost AMC nutrition
organises AMC Nutrition talks. These are free guide during AMC parties as a part of its CSR activity.
informative talks conducted by the Branch Nutritionist AMC nutrition guide has basic information and facts
in different areas for the duration of 45 Minutes. about nutrition, healthy eating habits, and nutrition
AMC nutrition talks educate the participants on requirements for various age groups. The AMC
various aspects of nutrition and healthy eating nutrition guide helps in creating awareness on healthy
habits. It imparts information and eye opening facts living amongst its readers. These CSR Activities
on balanced diet, conservation of nutrients, energy have resulted in creating awareness and better
content of nutrients, ideal weights etc. These free understanding of nutrition and healthy eating habits
talks are organised at various Health clubs, Rotary amongst the participants.
clubs, Ladies clubs, schools, colleges and residential
societies. The AMC nutrition talks are followed by
health checkups.

Avon Breast Cancer Crusade: Avon India

In 2008, Avon India launched the Avon Breast Cancer women. Through the sale of pink ribbon products,
Crusade in association with Avon Foundation followed Avon India raised more than USD80,000 from 2008 to
by the ‘Don’t turn a blind eye to breast cancer’ 2010, and the funds have been donated to the Cancer
campaign in 2009. Through various mediums, breast Patients Aid Association.
cancer awareness was disseminated to over 1 million

Source: Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

5. Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Driven by the potential for increasing penetration, growth
in consumer markets, rise in disposable income and
increasing urbanisation, the industry in Kerala has
immense growth potential.
The direct selling industry has huge India’s direct selling penetration is the level. Given its under-penetration, the
potential to increase its penetration in lowest among comparable economies industry in Kerala has a significant
India, which can significantly drive the at 0.4 per cent of the retail sales potential to grow going forward.
size of the industry. which further reduces at the state

Market penetration: Overview of

the global market
In China, the direct selling industry has
flourished from 2006 onwards and has
grown significantly over the past years.
Currently, China’s industry penetration
stands at twice that of India at 0.8 per
cent.

Other Asian markets such as

Indonesia, Japan and South Korea
have much higher direct selling
penetration levels. Malaysia has the
maximum direct selling penetration in
Asia with 4.3 per cent. Source: Euromonitor database, http://www.euromonitor.com/ , 26 August 2015

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Growth in consumer markets Projected market growth rate (2014-2025)
The overall industry growth in all the
key categories of direct selling such as
health and wellness, cosmetics and
personal care, household goods, and
others will fuel direct selling growth.

Most of these categories, which are

key contributors to the direct selling
industry, are projected to grow at 10-
16 per cent.

Source: Euromonitor database, http://www.euromonitor.com/, 26 August 2015, BCG Report ‘The Tiger Roars, Capturing India’s Explosive Growth in
Consumer Spending’, 2012, KPMG in India analysis 2014-15

Market potential in Kerala (INR billion)

With an expected growth in the consumer

markets and increase in the penetration of the
direct selling channel, the direct selling market
0.70-0.75
CAGR ~33-35% 18-20 in Kerala has the potential to record revenues of
INR18-20 billion by 2025.
2014 2025

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, FICCI direct selling taskforce and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Growth drivers/key trends
Increasing per capita income Per capita income in Kerala (INR‘000)
The robust GDP growth in the state
has given a boost to the GDP per
capita in the state. The state has
registered a CAGR of around 13.5 per
cent in the past decade and is likely to
witness strong growth in the future.
The resulting rise in disposable income
levels is expected to boost the direct
selling industry in the state.

Increasing working population

and urbanisation
• In 2011, about 48 per cent of
Kerala’s population resided in urban
Source: Economic Survey of India 2014-15 (GoI), 26 September 2015
areas, a number that is expected to
see an increase in the coming years.
Increasing working population
• Urbanisation is likely to have a
positive impact on lifestyle of
people as they will have more
exposure to better quality products
and services.

• Also along with rapid urbanisation,

by 2025 a higher share of the
population is expected to shift
towards the workable age group.
Convenience and improvement of
lifestyles should trigger a demand
for direct selling products specially
packaged food, cosmetics and
household appliances.
Source: Population projections for India and states 2001-2021 (Census)- 7 September 2015
Increasing reach of the direct
selling industry
Urbanisation
The direct selling industry is expanding
its reach across states. The companies
are trying to enter tier II and III cities
and rural areas, providing consumers
with knowledge about different
products and services. The companies
have adopted measures such as
foregoing their premium tags and
introducing smaller Stock Keeping
Units (SKUs) to make the products
affordable.

Source: Census data, Population projections for India and states 2001-2021 - 7 September 2015

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Opportunities and socio-economic
projections in Kerala: 2025
Self employment opportunities Direct selling employment opportunity
The growth of the direct selling
industry is likely to lead to an increase
in on-ground direct sellers. The direct
selling industry has the potential to
provide self employment opportunities
to 540,000 -560,000 individuals while
growing at a CAGR of 18-19 per cent
by 2025.

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI Direct
Selling Task Force and KPMG in India analysis 2014-15

Self-employment opportunities for women

Increase in self-employment
opportunities for women
The industry has traditionally had a
higher participation from women.
Considering prevailing trends, by
2025, the industry can potentially
engage over 320,000-340,000
women as direct sellers providing
additional income opportunities to their
households.

Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI Direct
Selling Task Force and KPMG in India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The industry has the potential to contribute INR1.9-2.0
bil ion to the exchequer in the form of taxes by 2025.
The industry’s projected Contribution to government
contribution to corporate social revenue
responsibility: 2025
Considering the market potential
• In August 2013, the Indian and future growth of the industry
Parliament passed the Indian to INR18-20 billion in 2025, the
Companies Act, 2013 (the ‘New contribution to the government
Act’), which replaced the revenue in the form of indirect taxes
Companies Act of 1956. The New is also expected to increase to
Act has imposed compulsory ~INR1,900-2,000 million by 2025.
Corporate Social Responsibility
obligations (CSR) upon Indian
companies and foreign companies Contribution to exchequer (INR million)
operating in India. Companies with
a turnover of INR10 billion or net
profit of INR50 million or more
have to spend 2 per cent of their
net profit for the preceding three CAGR ~33-35%
years on CSR. With the New Act in 1,900-2,000
place, the direct selling industry’s 70-75
contribution towards CSR is
expected to magnify significantly.

• The industry is expected to FY14 2025

contribute huge sums of funds
towards CSR activities by 2025
Source: IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, Industry discussions, FICCI Direct
annually (considering that 50 Selling Task Force and KPMG in India analysis 2014-15
Note: Impact of GST has not been considered for the opportunity assessment of the industry and its contribution to the exchequer.
per cent of the revenues will be
generated by companies falling
under the requirements of the
Act). Besides the mandatory
requirement, many other direct
selling companies contribute
significantly towards CSR.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The Kerala State Multi-Level Marketing (Control and Regulation) Bill, 2013 (‘Draft Kerala MLM Bill, 2013’)1
In the wake of the various legal actions Key statutes and information Key observations of the
being initiated against the fraudulent referred to by the Committee Committee
activities relating to money chain
schemes operating in the name of • Prize Chits and Money Circulation A need for a clear definition of direct selling
direct marketing, the Kerala State Schemes (Banning) Act, 1978 (‘PCMCS’)
Government constituted a Committee • Consumer Protection Act, 1986
with the twin objective of (i) preparing • Sale of Goods Act, 1930 Requirement of a Multi-level Marketing
effective guidelines to prevent Regulatory Authority
• Indian Contract Act, 1872
fraudulent activities relating to money
chains schemes; and (ii) safeguarding • Kerala Value Added Tax Act, 2003
A need for clear provisions for the protection
the interests of the consumers as well • Securities Exchange and Board of India of consumer interests
as law-abiding direct selling companies Act, 1992
in the state. • Judicial precedents in the context of the
PCMCS Act Constitution of a welfare fund for the
The Committee was headed by the • Representations of the direct selling
benefit of distributors
Secretary (Industries) and comprised companies
of the representatives of the • The Essential Commodities Act, 1955
Law Department, Home Ministry, The primary intention of the Committee
• Legal Metrology (Packed Commodities) was to frame detailed guidelines
Commercial Taxes Department and the Rules, 2011
Consumer Affairs Department. regulating direct selling or multi-level
• Legal Metrology Act, 2009 marketing activities, particularly to help
• Corporate law ensure that such business activities
are conducted without violating
the provisions of the PCMCS Act.
An overview of the guidelines and
provisions laid down by this Committee
has been captured in the next section.

1. The Kerala State Multi- Level Marketing (Control and Regulation)

Bill, 2013

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The Kerala State Multi-Level Marketing
(Control and Regulation) Bil , 2013
Key definitions
Key elements of the direct selling business have been defined under the Draft
Kerala MLM Bill, 2013:

Ecosystem of a direct selling business

Multi-level marketing/direct
selling registered entity

Sale of goods or rendition of services Pre-defined income plan

Sale through direct sellers

Further appointment of distributors

Terms Definitions

Direct seller A person appointed or authorised by a multi-level marketing entity to engage in direct selling.

Distributor A person appointed or authorised by a direct seller to work under him/her for the sale of goods and providing services of a multi-level
marketing entity as entrusted to him/her for direct selling.

Goods Every kind of movable property with a trade mark or any other identification mark under the Trade Marks Act, 1999 (Central Act 47 of
1999) or under any other law in force at the time.

Services Includes services of any description and providing benefits of any kind, other than the supply of goods, valid as per any law in force at
the time.

Income plan The sales and marketing plan of a multi-level marketing entity, illustrating the mode of sharing of profits and other incentives, including
financial and non-financial benefits, among the direct sellers and distributors, on a monthly or yearly basis or both, as the case may be.

Multi-level marketing or Marketing and sale of goods or providing services of a multi-level marketing entity through direct sellers or through direct sellers and
direct selling distributors, in any manner other than through shops, to the customers or consumers, generally in their houses or at their workplaces or
through the explanation and demonstration of such goods and services at a particular place or by mail order sale.

Multi-level marketing entity A company registered under the Companies Act, 1956 (Central Act 1 of 1956) or Companies Act, 2013 (Central Act of 2013) or any
partnership firm registered under the Partnership Act, 1932 (Central Act, 1932) or under the Limited Liability Partnership Act, 2008
(Central Act 6 of 2009) engaged in multi-level marketing.

Source: The Kerala State Multi-Level Marketing (Control and Regulation) Bill, 2013

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Constitution of a Multi-level –– Ensure that the consumers are of employees, of the multi-level
Marketing Regulatory Authority not being cheated by multi-level marketing entity of the State
marketing entities or direct at the time of application for
• The Committee report sellers and distributors under registration.
recommended that the Kerala State them.
Government constitute a Multi-level –– Such other information
Marketing Regulatory Authority Registration of a multi-level and documents, as may be
(‘MLM Authority’), controlled marketing entities prescribed.
by Director of Industries and • Every multi-level marketing entity –– The application shall be made in
Commerce, for the purposes of must carry out its business only such a form and in such manner
registration, control and supervision after obtaining a prior registration as may be prescribed.
of multi-level marketing in the State. under the Draft Kerala MLM Bill,
• A security deposit, being a fixed
• The salient powers and functions of 2013.
amount proportionate to the
the MLM Authority are listed below: • Multi-level marketing entities may total turn over of the multi-level
–– Implement the provisions of be permitted to appoint or authorise marketing entity at the time of
this Act and the rules made any number of ‘direct sellers’ application for its registration but
thereunder. under them and also to appoint not exceeding 3 per cent of this
any number of ‘distributors’ by the total turn over, shall be deposited
–– Give or refuse registration to direct sellers with the permission by the multi-level marketing
multi-level marketing entities, of such entities but the names of entity where the registration has
direct sellers and distributors all such direct sellers need to be been granted. In case the multi-
under them. registered with the MLM Authority. level marketing entity comes
–– Issue identity cards to the direct into being after the date of the
• An application for registration
sellers and distributors. commencement of this Act, the
should contain the following
security deposit may be fixed
–– Control and supervise the documents and information namely:
based on its paid-up share capital.
conduct of multi-level marketing. –– An authenticated copy of each of A certificate of registration shall be
–– Receive returns relating to the the Memorandum of Association immediately issued after depositing
business conducted by the (‘MOA’), Articles of Association the security amount.
multi-level marketing entities and (‘AOA’), Certificate of Registration
• Any modification or alteration
the direct sellers and distributors of the Company.
of the nature of the business or
under them. –– A copy of the latest balance change in the management of the
–– Monitor the taxes being paid sheet of the entity applying multi-level marketing entity after
by the multi-level marketing for registration, profit and its registration must be brought to
entities to the Commercial Taxes loss accounts and reports of the notice of the MLM Authority. A
Department. the auditor or directors of the true copy of all the documents in
applicant, if any. relation to such a modification or
–– Call for and inspect the records change shall also be furnished to
relating to direct marketing from –– Evidence of receipt of total paid-
the MLM Authority.
the multi-level marketing entities, up share capital.
direct sellers and distributors. • The registration certificate will be
–– The applicant’s multi-level
valid for a period of three years
–– Receive complaints from direct marketing scheme, including its
from the date of issue of the
sellers, distributors, customers income plan with respect to the
certificate. The certificate needs to
and consumers against the multi- business.
be renewed within one month of its
level marketing entities. –– Receipt of payment of the expiry.
–– Provide for settlement of registration fee, which shall be
disputes among them or to paid in such a manner as may be
give legal advice for taking prescribed.
appropriate legal actions in –– Address and other details of the
accordance with the law in force directors and partners, as the
at that time so as to remedy case may be, and the number
their grievances. 42

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Registration of direct sellers Registration of distributors • It must ensure the full refund of the
costs of any goods returned by its
• Every direct seller of a multi-level • No distributor shall engage in the consumers on the grounds of any
marketing entity shall register business on behalf of a direct seller defects or inferior, in comparison
his/hers or name with the MLM without an enrolment under the to the information about the goods
Authority and get enrolled in the Draft Kerala MLM Bill, 2013 and he/ provided by it, within 30 days of
direct sellers’ registry maintained she shall not act on behalf of any purchase.
by the MLM Authority and obtain a multi-level marketing entity.
certificate of the enrolment in the • The income plan of the entity must
• An application for enrollment not be based on the number of
manner and in such form as may be
shall be made to the concerned new direct sellers registered or
prescribed.
Additional Controller of the MLM distributors enrolled. The benefits
• No person or other entity, other Authority with such fee and in such received must be as a result of
than a distributor, shall engage in form and in such a manner as may selling goods or providing services
direct selling on behalf of the multi- be prescribed. and must not be in connection
level marketing entity unless the with the number of registrations
• A person shall not be entitled to
distributor or entity has enrolled as of direct sellers or enrolment of
get enrolled as a distributor for the
a direct seller under the Draft Kerala distributors.
same reasons as specified for a
MLM Bill, 2013.
direct seller. • It must not require the direct sellers
• An application for enrolment as a to enroll a minimum number of
• Upon enrolment, the distributor
direct seller shall, if the business is distributors for the purposes of
shall be issued a photo identity card
intended to be carried out in more receiving any type of commission,
stating the enrolment number and
than one District, be made to the incentive or other benefits.
such other details in such form as
Controller and if it is for one District
may be prescribed. Disclosures to be made by the
alone, to the Additional Controller
of the District concerned, with such Conditions for undertaking direct sellers and/or distributors
fees and in such form as may be direct selling The direct sellers and distributors must
prescribed. provide the following information to
Specific conditions have been
• The application shall contain the prescribed for a multi-level marketing the consumer at the time of the sale,
registration number and other entity for undertaking direct selling or namely:
details of the multi-level marketing multi-level marketing activities which 1. The name, address, registered
entity, true copy of the marketing inter-alia includes: number or enrolment number and
contract with that entity and such telephone number of the direct
• A multi-level marketing entity
other details and documents as seller or distributor and the multi-
must be a legal entity authorised
may be prescribed. level marketing entity.
to conduct business in India in
• Upon enrolment, the direct seller accordance with the provisions of 2. A description of the goods or
shall be issued a photo identity card the law in force. services to be supplied.
in the prescribed form.
• It must have a registered trademark 3. The order date, the total amount to
• No person or other entity shall which identifies the entity and the be paid by the consumer along with
be eligible to get registered, or goods or services to be supplied. the bill and receipt;
continue as a direct seller if he/she
• It must maintain appropriate 4. The time and place for the
is:
records with respect to their goods, inspection of the sample and
a. Convicted of an offence involving services, prices, income plans and delivery of goods.
moral turpitude; details of direct sellers etc.
5. A notice to the consumer of the
b. Declared as an insolvent as per • It must not require the direct seller consumer’s rights to cancel the
the provisions of any law in force or distributor to purchase any order and receive a full refund of
at the time; goods or services or to pay any the sum paid.
membership fee as a condition
c. Not mentally fit to deal with the 6. Details regarding the complaint
precedent for registration or
customers or consumers; redressal mechanism of the multi-
enrolment of direct sellers or
d. Not permitted by any other law distributors. level marketing entity.
43 applicable to him/her;
• It must not require the direct sellers 7. The direct sellers and their
e. Having such disqualifications, or distributors to pay any money distributors shall at all times carry
or not having such other by way of minimum monthly an identity card issued by the
qualifications, as may be subscriptions or renewal charges. authority.
prescribed.
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The terms and conditions of a • Every direct seller and distributor ‘employer’ and every distributor shall
sale between a direct seller or shall keep such register or registers be a ‘worker’.2
distributor and the customer stating the details of the products,
• Any distributor may become a
price, tax and the quantity and such
• The direct seller or the distributor, member of the Kerala Welfare Fund
other details with respect to the
as the case may be, must issue constituted under the said Act and
goods sold by him/her, in such form
a signed receipt to the customer thereupon he/she will be eligible
as may be prescribed;
upon receiving payments with for all the benefits under the Kerala
respect to the sale of goods or • The authority and the officers Welfare Fund Scheme on payment
services as agreed by both the concerned of the Commercial Taxes of the applicable contribution.
parties, in such form as may Department shall be competent
• Every multi-level marketing entity
be prescribed, which must also to call for such registers for any
and direct seller in Kerala shall be
contain grounds for cancellation purpose in accordance with the
liable to contribute to the fund.
of the transactions and such other provisions of an applicable law in
terms and conditions with respect force at the time; • No distributor can become a
to the sale of goods or services member of the said fund if he/she
• Notwithstanding anything contained
concerned; is a member of any other statutory
in this Act, every direct seller and
welfare fund.
• A customer may rescind a direct distributor shall comply with the
sales contract with a direct seller provisions of the Kerala VAT Act • The membership of the distributor
or distributor at any time within 30 in the said fund shall cease when
Constitution of a welfare fund
days from the date of such a direct he/she ceases to be a distributor.
sales contract, by serving the direct • A provision for the constitution of a
• The relationship between the
seller or distributor, as the case may welfare fund for the benefit of the
direct-level marketing entity, direct
be, a notice in such a form as may distributors has been incorporated
seller, distributor and consumer or
be prescribed. in the MLM Bill. Accordingly, the
customer shall be that of a principal,
provisions of the Kerala Shop
Issuing cash bills to the agent, sub-agent and third parties,
and Commercial Establishment
customers and keeping registers respectively.
Worker’s Welfare Fund (‘Kerala
• Every direct seller and distributor Welfare Fund’) Act, 2006 will be
who sells goods to a consumer applicable to every multi-level
shall issue a cash bill to such a marketing entity, direct seller and
consumer in accordance with the distributor in the state. Every
provisions of the applicable law in multi-level marketing entity and
force at the time. direct seller in Kerala shall be an

Amendment in Kerala Value Added Tax Act, 2003 (‘Kerala VAT Act,
2003’)
• The Kerala Budget for the Financial Year 2015-16 • By implication of the said amendment, all
brought about a major amendment in the Kerala incorporated multi-level marketing companies,
VAT Act, 2003 specifically in the context of their distributors and agents have been made
companies undertaking sales via the multi-level liable to obtain registration under the Kerala
marketing model. VAT Act and discharge VAT, irrespective of their
turnover.
• The terms ‘multi-level marketing’ and ‘multi-level
marketing entity’ have been defined in this Act on
similar lines as their definitions in the Draft Kerala
MLM Bill, 2013

44
Stringent compliance provisions - As per the Kerala VAT Act 2003, every direct seller or distributor in the MLM Chain
has to obtain VAT registration and discharge VAT even if he/she successfully concludes just a single sale during the entire
year.

2. The Kerala State Multi- Level Marketing (Control and Regulation) Bill, 2013

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The direct selling industry, similar industry and causes participants and High import duties
to the larger consumer industries potential customers to be wary, which Many ingredients for the industry’s
faces counterfeit issues and prevents them from realising the products are imported. Higher
general difficulty with regards to benefits of direct selling. import duties add to the prices of the
doing business in India. However, products and as a result makes them
Apart from the ambiguity in the
our interactions with the industry more expensive for the final consumer
PCMCS Act, there are many other
participants suggest that one of the adversely affecting the demand for
regulatory issues including a lack of
biggest challenges that the industry such products as they are available at
definition and separate provisions for
faces today is that of regulatory lower prices in international markets.
the industry, which adversely affects
uncertainty and lack of legislative
the industry.
support in recognition of the rightful
industry. The regulatory challenge for the
industry along with a potential solution
The Indian direct selling industry is
has been discussed in detail in the
well poised to occupy an important
next section.
position in the international and
domestic markets. However, there Other challenges
are many issues and challenges which
Counterfeit products
remain bottlenecks for the growth of
the Indian direct selling industry. Direct selling products should not be
sold through retail stores. However,
Specific challenges it has been seen that, many retailers
Regulatory uncertainty become direct sellers and start off
by selling the products to customers
The industry in Kerala is adversely
through retail outlets. This leakage
affected by the lack of a proper legal
of products through traditional retail
framework which is hampering its
channels is contradictory to the very
growth. There is no systematic and
nature of direct selling and needs to
standard policy on direct selling that is
be adequately addressed. This channel
based on the constitutional structure.
also encourages the sale of counterfeit
As a result, authorities have booked
products which affects the brand.
direct selling companies for unlawful
activities under the Prize, Chits and Difficulty to set up manufacturing
Money Circulation Schemes Act facilities
(PCMCS Act). The Act, which was Most larger direct selling companies in
enacted much before the advent of Kerala are renowned MNCs. However,
direct selling in India, is archaic and due to rigid labour laws and poor
does not distinguish rightful direct infrastructure, many of these have
selling businesses from malicious found it difficult to set up their own
money circulation schemes. Under the manufacturing facilities in the state.
PCMCS Act customer complaints are All states have different regulations
acted upon as though they are criminal and there is no centralised federal
offenses. This means investigating system, making the process of getting
officers have the power to arrest key clearances costly and time consuming.
individuals and seize company assets.
This paints a negative picture of the

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Current authorities of the such state(s). The
state judiciary and regulators have
alleged that some of the companies
mandate of this stringent law, that
prize chits, money circulation schemes,
by whatever name they may be called

regulatory engaged in direct selling conduct

‘money laundering activities’ by
are to be banned.

It is imperative to note that PCMCS

environment in
promoting or conducting a scheme
Act is an archaic legislation which was
for making quick and easy money. In
enacted around 40 years ago when
the wake of these allegations, there
the Indian markets had not even

Kerala
have been instances of top managerial
experienced any penetration by direct
person of a direct selling company
selling companies.
being remanded to custody. Local
The biggest challenge that the industry authorities have stalled the operations Having said the above, though the
faces today is that of regulatory of these direct selling companies and provisions of the PCMCS Act do
uncertainty, both at the Central and caused irreparable damage to their not explicitly exclude or deal with
the State level, and lack of legislative reputations. This regulatory challenge businesses which involve genuine sale
support in recognition of the rightful has lead to business uncertainty of products or services via the direct
industry. in India, with the added risk of selling mode. The primary intent of this
In Kerala, though there is a draft Bill harassment and business disruption.1 statute is to interdict schemes having
outlining the specific regulations/ no public value and designed to lure
The Prize and Chits Money
guidelines governing the direct selling a chain of innocent investors to loose
Circulation (Banning) Act, 19781
activities, however, the same has not their money.
The PCMCS Act was legislated in
been converted into a legal statute till However, during last few years, some
1978 to regulate and ban fraudulent
now. Indian government authorities have,
Pyramid and Ponzi schemes prevailing
Moreover, in certain states direct in the country which primarily benefit on a mistaken understanding of direct
selling companies have been allegedly the promoters and do not serve any selling model, taken the view that
tagged along with fraudulent schemes social purpose. The Section 2(c) of models of direct selling companies are
under the Prize and Chits Money the PCMCS Act, which provides akin to pyramid-based financial and
Circulation (Banning) Act, 1978 an inclusive definition of ‘money money circulation schemes banned
(‘PCMCS’) by the law enforcement laundering schemes’, emits a clear under the PCMCS Act.
Applying the principles of legal
interpretation and construction, read
with the pragmatic legislative intent
behind the enforcement of this statue,
conflation of genuine direct selling
companies with pyramid and Ponzi
schemes is a clear case of confused
identity. (Detailed analysis of the real
legislative intent of the PCMCS Act,
1978 is enclosed as Annexure 1).

Therefore, the differences in

interpretation regarding the
applicability of the PCMCS Act
have created formidable hardship
for genuine players operating in
this industry. The law enforcement
authorities have also been oblivious
of the fact that genuine direct selling
companies have been investing
significant amount in manufacturing
and research and development costs,
deal in high quality products- usually
globally accepted brands, provide after
sales services, redress distributor/ 50
consumer grievances on a timely basis.
In addition to significant capital

1. Industry discussions, FICCI direct selling taskforce and KPMG in

India analysis 2014-15

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investment, the distributors engaged Definitional issues2 • UNCPC and NIC are the standard
in selling of their products are paid classification systems followed
The lack of definitional clarity is
commission based on quantum of for classifying various economic
another major issue impacting the
sales and while the unsold inventory activities. Such classification
growth of direct selling industry.
is bought back in case of no eventual systems ensure comparability of
sales. Contending that the absence of a statistics from various systems, on
precise definition of direct selling different aspects of the economy,
It is in this backdrop that the need
is a primary reason for confusion, and usability of such data for
to confer regulatory clarity and
experts have often drawn inferences economic analysis. In the current
certainty direct selling companies with
from three different perspectives - (1) version 2 of UNCPC, the two digit
legitimate businesses, arises so as to
Legislative; (2) Operational; and (3) code:
ensure that they are not conflated with
Statistical:
fraudulent pyramid and Ponzi schemes. • 62 - stands for ‘Retail trade
Legislative definition services’; and the further
Multiplicity of regulations2
classifications:
Amendments in Kerala Value Added
The direct selling sector in India has a
Tax Act, 2003 (‘Kerala VAT Act, 2003) –– 621 and 622 - stands for
quasi-federal governance structure. The
retail trade services through
Constitution of India has demarcated • The Kerala Budget for Financial
specialised and non-specialised
the areas of jurisdiction areas of Year 2015-16 brought about a major
stores.
jurisdiction for the Central Government amendment in the Kerala VAT Act,
(Union List), State Governments (State 2003 specifically in the context of –– 623, 624 and 625 - is a residual
List) and joint administration between companies undertaking sales via category and can be interpreted
Central and State Governments the multi-level marketing model. as direct selling.
(concurrent list).
• The terms ‘multi-level marketing’ –– 623 is explained as, ‘This group
According to Indian constitution, and ‘multi-level marketing entity’ includes:- mail, catalogue or
wholesale and retail trade fall under have been defined similarly as Internet sales services by stores
the purview of state governments. defined in the Draft Kerala MLM that accept orders of new goods
Since direct selling, as defined in Bill, 2013. This is the only legislative by mail, telephone, e-mail, etc.,
NIC 2008 classification, is a part of definition of MLM activities in India. and ship or deliver products to
non-store retail format, it falls under the customer’s door.’
• By implication of the said
state legislation. However, this sector
amendment, all incorporated –– 624 is explained as, ‘This group
is also closely monitored by different
multilevel marketing companies, includes:- retail trade sales
ministries/departments of the central
their distributors and agents through vending machines;
government.
have been made liable to obtain retail trade services of market
As on today, multiple statutes relating registration under the Kerala VAT stalls- retail trade services of
to consumer protection, product Act and discharge VAT, irrespective door-to-door sales or direct
labelling, food safety and standards, of their turnover. sales, defined as a method
administrative laws both at the of consumer product and
Operational definitions by various
Central and State level regulate the services distribution via sales
associations
direct selling sector in India in a in a person-to-person manner/
piecemeal fashion. This complex maze The second category of definitions way from a fixed retail location
of multitude of regulations is further includes definitions provided by the primarily through independent
complicated by the misapplication of associations such as Indian Direct salespeople and distributors
PCMCS Act. Selling Association, World Federation who are compensated for their
of Direct Selling Associations etc. (as sales and for their marketing and
Therefore, one of the major challenges
already discussed earlier) are also promotional services, based on
faced by direct selling companies in
not sufficient to define the scope of the actual use or consumption of
India is that they have to abide by and
direct selling industry in India. These such products or services.’
ensure compliance with over 30 odd
definitions do not tantamount to law
regulations with no nodal government –– Finally, 625 is explained
and policy.
department so far. This involves as, ‘This group includes:
significant time, effort and cost, Statistical definitions retail services of commission
thereby adding to the difficulties faced agents who negotiate retail
• Among the statistical definitions,
by this promising sector in India. commercial transactions for a
one may refer to the classification
fee or a commission; services of
of products provided under the
electronic retail auctions.’
51 United Nations Central Product
Classification (UNCPC) - and
National Industrial Classification
(NIC).
2. Industry discussions, FICCI direct selling taskforce and KPMG in
India analysis 2014-15

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The Indian statistical counterpart is the his/her order by mail, phone or over premises, activities of non-store
2008 version of the NIC. At the 2-digit the Internet (usually through special auctions (retail) and retail sale by
level, NIC 2008 defines: means provided by a website). The (non-store) commission agents. This
products purchased can be either class excludes delivery of products
• Division 47 - covers retail trade,
directly downloaded from the by stores.
with the exception of motor
Internet or physically delivered to
vehicles and motor cycle • 47990 – Other retail sale not in
the customer’.
stores, stalls or markets.
–– 471 through 478 are sales
–– 47911 - Retail sales via mail order
through stores, stalls and marts. The direct selling industry is evolving
houses
with rapid technological development
–– 479 – Retail trade not in stores,
–– 47912 – Retail sales via and many new non-store formats
stalls or marts’.
e-commerce. like e-tailing, catalogue selling,
One can sub-divide a bit further, but mail-order selling and telemarketing
• 4799 - This leaves a residual
that is at best artificial. are developing. These are often
category of other retail sales not
linked to direct selling as it involves
• 4791 - Retail sales via mail through stores, stalls or marts.
booking through phone calls and
order houses or via internet’
• 4799 is interpreted as retail sale of demonstrations through catalogues.
and explained as: ‘in retail sale
any kind of product in any way that In the wake of existing regulatory
activities in this class, the buyer
is not included in previous classes uncertainty hovering over this sector
makes his/her choice on the basis
(by direct sales or door-to-door and ever-growing forms of non-store
of advertisements, catalogues,
salespersons, through vending retail, it is imperative to arrive at a
information provided on a website,
machines etc.), direct selling of precise definition and classification of
models or any other means of
fuel (heating oil, fire wood etc.), direct selling business.
advertising. The customer places
delivered directly to the customer’s

Potential solutions
To provide a conducive and sustainable measures of enacting a specific confidence. This change is imperative,
operating environment in India for governing legislation for the sector or especially when the industry is in
the companies operating in direct making amendments in the existing double jeopardy at the moment – an
selling industry, a series of reforms Acts/policies. erosion of faith and an identity crisis.
are required ranging from immediate
A separate policy framework for the We have listed potential approaches
short-term reforms in the nature
direct selling industry will clear the below that can be considered by the
of framing state level rules and/or
blurred lines between ethical industry State Government/regulators in the
standard operating procedure for law
players and impersonators and go coming future to benefit this industry.
enforcement agencies to long-term
a long way in regaining consumer

A snapshot: Potential solutions

Long-term
• Recognition of Ministry of Consumer Affairs
as nodal ministry
• Enactment of a comprehensive sector specific
legislation
Medium-term Help improve ‘Ease of Doing
Business’ Ranking of the State
• Amendment in PCMCS Act and India
Also lead to the creation of well
regulated ecosystem
Shall ensure conflation of
direct selling schemes with
Short-term fraudulent Ponzi/pyramid
schemes
• Draft Kerala MLM Bill, 2013 may be enacted
• Formulation of standard operating procedures Shall break the shackles of uncertainty
for law enforcement agencies in each State and bring about a renewed sense of
optimism for genuine players 52

0 – 6 months 6 months – 3 years Beyond 3 years

Source: IDSA annual survey 2013-14 and 2009-10, IDSA, http://www.idsa.co.in/IndustryReports.html, 22 September 2015, PHD Chamber, ICREAR, Direct Selling News, Industry Discussions, FICCI Direct Selling Task Force

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Formulation of standard operating procedures for law
enforcement agencies
While remedies in law are available in existing In the above backdrop, in order to give direct selling
statues, even today, they do not address the unique industry a chance to substantiate genuines and
problems of the direct selling industry. The Indian prevent immediate criminal action on the receipt
law provides only for post-facto remedies wherein of complaint, State along with its law enforcement
the customers can seek remedy only after they agencies may develop standard operating procedures
have been wronged or cheated by a fly by night to be followed in case when a complaint is filed
operator. As a consequence, owing to lack of legal against fraudulent MLM schemes. This ground
and administrative guidance, the law enforcement level initiative shall help avoid undue harassment of
agencies of the State erroneously tag along the genuine players of the industry and restore public
direct selling businesses with money circulation confidence.
schemes banned as a criminal offence under the
PCMCS Act.

Specific standard operating procedures for law enforcement authorities can help ensure that timely and correct
legal action is taken against fraudulent money circulation schemes and undue harassment to bonafide direct selling
companies can be curtailed.

Implementation of state specific Potential benefits

guidelines
• Being viewed as
• While the Central government evaluates the amendment of PCMCS investor friendly can
Act or formulation of sector specific guidelines at the Central level, help provide states
the provisions of the Draft Kerala MLM Bill, 2013 enumerated with a competitive
above, may be enacted.
edge
• In line with the proposed statute, necessary amendments may
be brought about in the Kerala VAT Act to reinstate the prescribed • Improve the ‘Ease
minimum turnover threshold prescribed for undertaking VAT of Doing Business’
registration by the direct sellers or the distributors as well. Ranking of the state
• Aid in the process of
building Smart Cities
• Protect the interests of
both the direct sellers
as well as consumers.

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Amending the PCMCS Act
• Over the years, many steps have been taken circumstances, be resold or returned for a
by the Centre and various state governments refund, a pyramid scheme may be presumed.
to formulate an enabling policy for direct selling Such a practice is often called ‘inventory
companies in India. Various inter-ministerial loading’ and may also be used as a proxy for a
committee(s) were formed under aegis of the joining or renewal fee that gets redistributed to
Ministry of Consumer Affairs and Ministry of other participants. Thus, such practices should
Finance to formulate sector-specific regulations be prohibited.
which are still under review by various government
–– Schemes where products are not refundable
bodies. The Finance Minister, in the Budget
and returnable: Where customers and
Speech of 2014, proposed to bridge the regulatory
distributors are not offered a commercially
gap under PCMCS Act and bring about the long
reasonable opportunity in compliance with the
awaited legislative reform. However, no progress
mandatory provisions of the local legislation
has been made in this regard so far.
to return products with which they are not
• The PCMCS Act needs to be amended to make satisfied, or which they are not able to sell,
the distinction clear between direct selling and as the case maybe, a pyramid scheme is
fraudulent pyramid money circulation schemes presumed.
and exclude the direct selling industry from its
–– Schemes which restrict the commission
scope. The said amendment should succinctly
paid to the distributor: The proportion of
outline clear indicators of fraudulent schemes
commissions on the sale of product that may
including:
be shared with distributors should be restricted
–– Payment for recruitment and/or to a reasonable percentage of the total revenue
redistribution of joining/periodic renewal from sales to distributors.
fees In addition to these, the amendment of the Act
could include the following:
»» Payment for recruitment: When the scheme
generates income based on recruiting alone, –– Approval authority given to the state
it is a pyramid scheme and thus, should be governments: It can be provided that
prohibited. only the schemes approved by respective
state government would be considered as
»» Redistribution of joining or periodic renewal
permissible activity.
fees: When there are entry or renewal fees
that are redistributed to other participants in –– Mandatory 24x7 call centres to address
the scheme, it is a pyramid scheme and thus, customer complaints.
should be prohibited.
–– Compulsory accreditation of products from
–– Schemes where products are pushed on government approved quality institutes (similar
participants: When participants, as a condition to how foods products or related products
for joining or remaining in the scheme, are require accreditation under FSSA Act) or
required to purchase a specified inventory adherence to certain pre-determined quality
of products which cannot, under normal standards in India.

Filling in the gaps in the present PCMCS Act can help the direct selling sector to break the shackles of uncertainty and
bring about a renewed sense of optimism among the genuine players.

4. KPMG in India analysis 2014-15

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Need for a governing ministry and legislation
• The lacunae in the PCMCS Act necessitate that its For example, the laws do not clearly specify
diverse provisions are supplemented by legislation the cooling-off period for purchases through the
that specifically addresses direct selling. direct selling mode. Apart from this, legal cases
in India take time and there is a need to speed up
• At present, direct selling falls under the purview
consumer court proceedings.
of state legislation and is also governed by various
Ministries/departments at the Centre, State and • In this context, the Indian Government can
local levels. The multiplicity of regulatory bodies leverage from the regulatory experiences
has resulted in multiple regulations and regulators and practices of other countries, viz. U.S.A.,
governing this sector. These should be streamlined U.K., Malaysia, Singapore, etc. The industry,
for the smooth performance and development of government and consumers suffer because of
this promising sector. the activities of some of the fraudulent players.
Therefore, the Central government can collaborate
• While it is important that an enabling definition
with industry associations and independent legal
of direct selling is developed, it cannot serve its
experts to design an appropriate regulation.
full purpose unless it is accompanied with an
appropriate legislative recognition and effective • ‘Trade and commerce’ being the state subject, from
enforcement. Considering this, the government a consistency perspective, the power to define
should nominate a specific ministry governing direct selling activities and demarcation of pyramid
‘direct selling industry’. Such ministry should schemes from bonafide direct selling businesses
provide for specific regulations with a precise may be provided at the Central Level. While, the
and a clear definition of ‘direct selling activities’ state government should be provided complete
including legitimate MLM companies. autonomy to implement the provisions of such
Central legislation by way of formulation of inter-
• The Consumer Protection laws also need some
alia specific consumer protection Rules/guidelines
modifications in order to protect the interest of the
governing the activities of direct sellers in each
consumers for products sold through direct selling.
state.

Single point clearance and a specific legislation can help bring about clarity in the business dealings of direct selling
companies and save on cost, time and effort.

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Most direct selling companies out for clear indicators of pyramid • In addition to providing income
are pyramid schemes that are schemes, including high joining fees, opportunities, direct selling also
doomed to fail emphasis on recruiting new members imparts transferable skills in sales
The differentiating factors between not selling, no buying back of products, and management, which can be
direct selling and pyramid or Ponzi etc., as elaborated upon earlier in the used outside the direct selling
schemes clearly indicate that with document. industry, as well.
a view to make quick money, their The specific details such as IDSA code • The various direct selling
promoters typically make participants clause for 12 months, direct sellers kit associations’ (IDSA, WFDSA, etc.)
deposit large sums of money to join, provided, etc. need to be covered in code of ethics, is designed to
and financial rewards depend on detail. So this needs to be retained. protect direct sellers and their
further recruitment of members. Some customers. Inventory buybacks
Pyramid/Ponzi schemes may purport Majority of direct sellers lose (which include sales aids) and other
to sell products to camouflage the money; a lot of the direct sellers provisions allow sellers recourse if
financial fraud but the products usually drop out from the companies they wish to exit the industry.
have little value and there is little or no • A large number of direct sellers • While the retail industry has
selling. say that direct selling meets or attrition rates as high as 20
On the other hand, genuine direct exceeds their expectations as a percent, the attrition rate for the
selling involves marketing of quality good way to supplement their direct selling industry is around 11
products at competitive prices with income or as a way to make money percent3. Many direct sellers do not
associated product warranties and for themselves1. drop out due to failure but do so as
guarantees. Also, the exponential • A large number of the direct sellers they may not want to sell any more
addition of distributors to the network say that direct selling meets or for the year.
is earned only by accomplishing actual exceeds their expectations as a
sales on a consistent basis. business where the harder they
work, the more money they can
Of course, it is necessary to watch
make.2

1. ICRIER survey report titled ‘socio-economic impact of direct

selling: Need for a policy stimulus’ published in 2010, retrieved on
25 August 2015
2. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/
IndustryReports.html, Industry discussions, FICCI direct selling
taskforce and KPMG in India analysis 2014-15, 22 September
2015
3. IDSA annual survey 2013-14, ETRetail.com retrieved on 25 August
2015.
58

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Everyone who gets involved in Most companies require compensation for down line sales
direct selling wants an easy way inventory purchases; direct volume are either consuming or
to make money sellers who drop out are reselling the products they purchase
People join direct selling firms with stuck with the inventory they in order to qualify to receive
various intentions. As per ICRIER purchased compensation.
survey in 2011 (Report titled socio- Direct selling companies have a clear
Direct selling companies typically
economic impact of direct selling) 60 focus on new product development.
do not require or encourage direct
per cent of the respondents stated As per PHD Search Bureau and IDSA
sellers to purchase product inventory
earning additional income as one surveys as part of the Indian direct
in unreasonably large amounts. The
of the key reasons for joining direct selling industry, annual survey 2013-
IDSA code governs that companies
selling, 60 per cent of the surveyed 14, on an average, each direct selling
shall buy back any unsold, re-saleable
people mentioned direct selling as a company introduced around three
product inventory, purchased within
medium of becoming independent, new products/variants during 2013-14
the previous 12 months in case the
while others take it up as it offers in India, while the number was seven
seller opts to quit.4
more flexibility or acts as a major in 2012-13. The companies have also
source of income. In fact, direct Recruitment is the key to invested about 2 per cent of their
selling offers significant employment success in direct selling; sales to annual revenues in R&D activities
opportunities to women in particular. end-users of the products and in 2013-14 which reflects the strong
About 64 per cent of women engaged services are minimal product focus of these firms.
in direct selling are self employed (full-
Recruitment is certainly an important In addition, direct selling companies
time) direct sellers while only 36 per
aspect of direct selling. This helps in invest significantly towards the
cent are part-time consultants4. Hence,
the expansion plans of the company development of direct sellers. Direct
there is a clear recognition of direct
thus leading to its growth. However, selling companies have offered training
selling’s potential to generate stable
recruitment is not a requirement to their sales representatives in the
income in proportion to the efforts
for the growth of a direct seller as range of 200 man hours per quarter to
made.
the compensation is almost always around 22,000 man hours per quarter
The IDSA code of Ethics4 requires that based on actual sales of products or in 2013-144.
information provided by direct selling services. The direct selling industry
companies to prospective or existing in India was worth more than INR75
direct sellers should be accurate and billion in 2014. Major firms such as
4. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/
complete. Companies are required to Amway, Avon, Tupperware, Oriflame, IndustryReports.html, 22 September 2015
5. IDSA annual survey 2013-14, Industry discussions, FICCI direct
present the advantages of the selling etc. are all product companies5. The selling taskforce and KPMG in India analysis 2014-15
opportunity to any prospective recruit IDSA code specifies that companies
in an accurate and realistic manner. shall take reasonable steps to ensure
that direct sellers who are receiving

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If a person attends a direct selling event/party, he/she is expected to purchase a product that is typically
overpriced
There is no obligation to purchase companies offer 100 per cent money demand for convenience, formats
any product during any direct back policy, in many cases even if like direct selling and e-commerce
selling events/parties. These events the products are used. Direct selling are catching on in the country.
are usually conducted only to has been found to be appealing These channels remove multiple
demonstrate company products by to customers for its high quality intermediaries, thereby offering
the direct selling consultants. The key of products and increased buying effective and economical ways of
purpose is to enhance the customer convenience.7 Some of the products selling products and services. Direct
buying experience while interacting could be in the premium segment selling in particular, allows companies
with knowledgeable and friendly but the value-added incentive of the to significantly cut down advertising
consultants. They offer elaborate demonstration and personal service costs.
insights into the products which are increase their acceptance.
There are many examples where large
not available with other retail formats.
Direct selling is an outdated companies have leveraged the direct
The IDSA code also mentions that
method of buying and selling selling model to increase customer
a direct seller shall discontinue a
outreach and sales in a cost-effective
demonstration or sales presentation Direct selling is practiced in more
way. HUL’s project ‘Shakti’, which
immediately upon the request of the than 170 countries globally. The direct
increased the penetration of its
customer and should not force him/her selling industry in India has shown a
products along with empowering
to make any purchase.6,7 growth rate of 16 per cent over the
women, or Eureka Forbes selling its
period of FY11-14. Globally, the direct
In this competitive age, the market high value products through direct
selling industry grew at a CAGR of 8.5
is unlikely to be able to sustain selling are testimony to the relevance
per cent over 2010 to 20146,8.
overpriced products for longer periods of the direct selling model in India.7
of time. Almost all the direct selling With rising income levels and
6. IDSA annual survey 2013-14, IDSA, http://www.idsa.co.in/
IndustryReports.html, 22 September 2015
7. Industry discussions, FICCI direct selling taskforce and KPMG in
India analysis 2014-15
8. WFDSA annual report 2015, WFDSA, http://www.wfdsa.org/
library/index.cfm?fa=publications, 22 September 2015

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Annexure 1
At this juncture, it is imperative to note or conducting a scheme for the
the Supreme Court judgment in State making of quick or easy money and
of West Bengal and others versus secondly, the change or opportunity
Swapan Kumar Guha and others. The of making quick or easy money
Hon’ble SC got an opportunity to must be shown to depend upon
excavate the true meaning of Section an event or contingency relative
2(c) of the PCMCS Act. Although facts or applicable to the enrolment of
leading this case were not from direct members into that scheme. The
selling industry, the court encountered legislative draftsman could have
with the challenge of finding the real thoughtfully foreseen and avoided
meaning behind of PCMCS Act and all reasonable controversy over the
more particularly section 2(c). meaning of the expression ‘money
circulation scheme’ by shaping its
The apex court felt that it is far too
definition in this form’.
vague and arbitrary to prescribe that
‘whosoever makes quick or easy money’ After reading the SC judgment and
is to be penalised under the statute. James Raj Committee report, a logical
After due deliberation the court laid conclusion may be drawn that the
down the following: PCMCS Act, in its true spirit, does
not apply to rightful direct selling
‘Two conditions must, therefore, be
companies, who develop MLM plans.
satisfied before a person can be
The sole motive of the recruitment
held guilty of an offence under Sec.
is to develop a larger sales force to
4 read with Sections 3 and 2(c) of
sell more products to prospective
the Act. In the first place, it must
customers.
be proved that he is promoting

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Annexure 2
Definitional issues
Statistical definition transactions for a fee or a directly to the customer’s
Among the statistical definitions, commission; - services of premises, activities of non-store
one may refer to the classification of electronic retail auctions.’ auctions (retail) and retail sale by
products provided under the United (non-store) commission agents.
The Indian statistical counterpart is
Nations Central Product Classification This class excludes delivery of
the 2008 version of the NIC. At the
(‘UNCPC’) - and National Industrial products by stores.
2-digit level defines:
Classification (‘NIC’). –– 47990 – Other retail sale not in
• Division 47 - covers retail trade,
In the current version 2 of UNCPC, the stores, stalls or markets
with the exception of motor
two digit code: vehicles and motor cycle Operational Definition by various
• 62 - stands for ‘Retail trade –– 471 through 478 are sales associations
services’; the further classifications through stores, stalls and marts. The second category of definitions
as under: includes definitions provided by the
–– 479 – Retail trade not in stores,
–– 621 and 622 - stand for associations such as IDSA, WFDSA
stalls or marts’.
retail trade services through etc. (already discussed above) which
specialised and non-specialised One can sub-divide a bit further, but are not sufficient to define the scope
stores that is at best artificial. of direct selling industry in India. These
definitions do not tantamount to law
–– 623, 624 and 625 - is a residual –– 4791 - Retail sale via mail order
and policy.
category and can be interpreted houses or via internet’ and
as direct selling explained as, ‘in retail sale Legislative Definition
activities in this class, the No legislative definition exists in India.
–– 623 is explained as, ‘This group buyer makes his/her choice on
includes:- mail, catalogue or Given that India is one of the few
the basis of advertisements, countries where there is an FDI
Internet sales services by stores catalogues, information provided
that accept orders of new goods restriction in retail but there are other
on a website, models or any entry routes, whether direct selling
by mail, telephone, e-mail, etc., other means of advertising. The
and ship or deliver products to is classified under wholesale or retail
customer places his/her order by trade is unclear. The confusion also
the customer’s door.’ mail, phone or over the Internet rises because direct selling has both
–– 624 is explained as, ‘This group (usually through special means B2B and B2C components.
includes:- retail trade sales provided by a website). The
In addition, the direct selling industry
through vending machines;- products purchased can be either
is evolving with rapid technological
retail trade services of market directly downloaded from the
development and many new non-store
stalls- retail trade services of Internet or physically delivered to
formats like e-tailing, catalogue selling,
door-to-door sales or direct the customer’.
mail-order selling and telemarketing
sales, defined as a method »» 47911 - Retail sale via mail are developing. These are often
of consumer product and order houses linked to direct selling as it involves
services distribution via sales booking order through phone calls and
in a person-to-person manner/ »» 47912 – Retail sale via
demonstrations through catalogues.
way from a fixed retail location e-commerce
This has increased the complexity
primarily through independent –– 4799 - This leaves a residual of arriving at a precise definition and
salespeople and distributors category of other retail sales not classification.
who are compensated for their through stores, stalls or marts
sales and for their marketing and
promotional services, based on –– 4799 is interpreted as retail
the actual use or consumption of sale of any kind of product in
such products or services.’ any way that is not included in
previous classes (by direct sales
–– Finally, 625 is explained as, ‘This or door-to-door salespersons,
63 group includes:- retail services through vending machines etc.),
of commission agents who direct selling of fuel (heating
negotiate retail commercial oil, fire wood etc.), delivered

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Annexure 33
There are a lot of similarities between In the retail format, the CFA,
traditional consumer goods, retail and redistribution stockist, and retail
direct selling models: seller earn sales margins. In case of
direct selling under an MLM plan, all
• In both formats, distributors/direct
different levels of direct sellers earn
sellers earn a commission when
commissions on the sale of products.
product sales takes place.
• Also, in both cases earning of the
sales commission is based on the
sales volume of the individual (and
the group).

Traditional consumer goods retail model

Third party carrying and

Manufacturing Redistribution stockist
forwarding agents

Retailer/wholesaler Retailer/wholesaler Retailer/wholesaler

Customer Customer Customer

Source: Industry discussions, KPMG in India analysis 2014-15

Direct selling (multi-level

(multi level marketing) model

Distribution centres across

Manufacturing
India

Direct seller Up-line direct seller Direct seller

Downline Downline
Customer Customer
direct seller direct seller

Customer

Source: Industry discussions, KPMG in India analysis 2014-15

64
However, despite the similarities above, the traditional consumer goods retail and direct selling models, are essentially
different formats with different investment requirements and sales philosophies.

3. Industry discussions, FICCI direct selling taskforce and KPMG in India analysis 2014-15

1
Identification of industries that significantly employ direct selling methods
Based on industries currently forming a major part in direct selling both in India and abroad. For
example: beauty and personal care

2
Determine the current market size of the identified industries and the penetration
of direct selling in each of the identified industries
Based on secondary sources and KPMG in India analysis
Methodology adopted

3 Project the market size of the identified industries in 2025

Based on secondary sources and KPMG in India analysis

4 Project the penetration of direct selling in 2025 in each of the identified industries
Comparison with other economies which have exhibited a similar evolution cycle for direct selling
industry

5 Aggregate the industry-wise numbers to arrive at the total project market size for
direct selling in 2025

Market size of Direct selling Market size of Direct selling Market

the identified penetration in ---- the identified penetration in size of the
industry 1 industry 1 industry nth industry nth direct selling
industry
65

1 Identification of country A whose current industry size is comparable to India’s

2025 estimated market
Methodology adopted

2 Calculation of revenue per direct seller for the identified country A

3 Calculation of India’s 2025 estimated market revenue equivalent in PPP terms for
comparable estimation

4 Estimation of India’s potential for generating self-employment using country A’s

equivalent

Direct selling market size and direct sellers’ estimation for states

1 Projection of Indian middle-income households for 2025 using 2011 numbers

Methodology adopted

2 Distribution of the total Indian middle-income households by states based on

estimated improvement in state welfare

3 Distribution of estimated direct selling market in 2025 by states using a proportion

of middle income households as proxy for the direct selling potential for that state

4 Distribution of estimated direct sellers in 2025 by states using a proportion of

direct selling potential for that state

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About FICCI About KPMG in India
Established in 1927, FICCI is the largest and oldest apex KPMG in India, a professional services firm, is the Indian
business organisation in India. Its history is closely member firm of KPMG International and was established
interwoven with India’s struggle for independence, its in September 1993. Our professionals leverage the global
industrialisation, and its emergence as one of the most network of firms, providing detailed knowledge of local
rapidly growing global economies. laws, regulations, markets and competition. KPMG in
India provides services to over 4,500 international and
A non-government, not-for-profit organisation, FICCI is the
national clients in India. KPMG has offices across India in
voice of India’s business and industry. From influencing
Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai,
policy to encouraging debate, engaging with policy makers
Bengaluru, Kochi, Hyderabad and Kolkata. The Indian firm
and civil society, FICCI articulates the views and concerns
has access to more than 8,000 Indian and expatriate
of industry. It serves its members from the Indian private
professionals, many of whom are internationally trained.
and public corporate sectors and multinational companies,
We strive to provide rapid, performance-based, industry-
drawing its strength from diverse regional chambers of
focussed and technology-enabled services, which reflect
commerce and industry across states, reaching out to over
a shared knowledge of global and local industries and our
2,50,000 companies.
experience of the Indian business environment.
FICCI provides a platform for networking and consensus
building within and across sectors and is the first port of
call for Indian industry, policy makers and the international
business community.

FICCI Direct Selling Task Force

The FICCI FMCG division has been relentlessly working on
various issues which are critical for the industry. We have
been actively involved in the policy and strategy, capacity
building and global recognition for the Indian FMCG industry.
We have formed a Task Force on direct selling industry
which works on the similar issues with the Government.
Direct selling is a very obvious distribution channel for
FMCG industry and has gained huge importance in the
times when demand is further driven by convenience at
their doorstep. Direct selling, as we understand is a sales
and distribution channel/system whereby, on the basis of
certain well defined rules direct sellers can derive income
not only from personal sales but also from ongoing sales
and consumption by people whom they, directly or indirectly,
have introduced to the direct selling company and for whom
they provide ongoing motivation and training.

We at direct selling sub-committee give expert insight to

the issues pertaining to this labour intensive industry. We
interact with various ministries – to name a few – Ministry
of Consumer Affairs, Ministry of Corporate Affairs, Ministry
of Finance, etc. to bring legitimacy to direct selling sector.
The subcommittee within itself has an advisory board of
judgement neutral and intellectual people. In addition, the
committee has coordinated the think tank which deliberates
issues and concerns of the DS industry on regular basis.
The committee has also undertaken several events and
67 initiatives to clearly bring out distinction between scams and
multi-level marketing.

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KPMG’s Disclaimer Acknowledgements
KPMG in India has, to the best of its ability, taken care to This report could not have been written without valuable
accurately compile the information and material contained contributions from the following people.
in this report. The report contains certain case studies,
Ms Shilpa Gupta and her team at FICCI and Members of
company profiles and country regulations which have been
FICCI Taskforce on direct selling, who have guided and
collected through primary interactions, media reports and
facilitated the making of this report.
company websites. We have indicated within our report the
sources of the information presented. We have not sought The KPMG team, who has contributed towards the content
to establish the reliability of these sources by reference to presented in this document, involved Rajat Wahi, Amarjeet
independent evidence. Singh, Puneet Gupta, Suvasis Ghosh, Sushil Patra, Saurabh
Karodi, Nitin Khanna and Sonam Chauhan. A special note
In addition, the report contains certain prospective market
of thanks to the Brand and Design team for their notable
projections. Such projections are based on secondary
contribution in designing this report and bringing it to its
research and our analysis based on certain underlying
present form.
assumptions. We must emphasise that the realisation of the
projections is dependent on the continuing validity of the
assumptions on which they are based. The assumptions will
need to be reviewed and revised to reflect any such changes
in the business structure and direction as they emerge.

KPMG does not warrant that the information and material

contained in the research work, or any part thereof, is
designed to, or will meet any person/organisation’s
requirements, or that it will be error free or free from
any inadequacies, incorrectness, incompleteness, or
inaccuracies. KPMG hereby disclaims any warranty, express
or implied, including, without limitation, any warranty of
non-infringement, merchantability or fitness for a particular
purpose, in respect of any information and/or material
contained in the research work. KPMG will not be held
responsible for any loss, damage or inconvenience caused
to any person as a result of any inadequacies, incorrectness,
incompleteness, inaccuracies, or errors contained in these
research reports. No one should act on such information
without appropriate professional advice after a thorough
examination of the particular situation.

This paper shows a potential path the sector will follow in

the run up to 2025; all our findings/forecasts are based on
extensive research, analysis and discussions with industry
players. However, they are subject to change due to the
multiple unpredictable variables which could affect the
industry.

The report shall be read in its entirety by those to whom

it has been circulated for viewing, without removing any
disclaimer. By reading this report, the reader/s of the report
shall be deemed to have accepted the terms specified
above.

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KPMG in India contacts: FICCI contact:
Nitin Atroley Shilpa Gupta
Partner and Head Head
Sales and Markets Retail, FMCG, Gems and Jewellery Committee
T: +91 124 307 4887 FICCI Young Leaders’ Forum
E: nitinatroley@kpmg.com T: +91 11 2348 7270
E: shilpa.gupta@ficci.com
Ambarish Dasgupta
Partner and Head
Management Consulting ficci.com
T: +91 33 4403 4095
E: ambarish@kpmg.com

Rajat Wahi
Partner and Head
Consumer Markets
T: +91 124 307 5052
E: rajatwahi@kpmg.com

KPMG.com/in

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