Though the issue of lack of regularity clarity to differentiate genuine direct selling and multi-level marketing companies from fraudulent pyramids and ponzi schemes has been hanging fire since early 2000, it is in the last couple of years that the matter has taken the centre-stage following a series of scams.
However, till date, despite three-different inter-ministerial groups (IMGs) working in tandem – the latest one being the one constituted after the Saradha scam-- there is still no clarity over difference between direct selling, multi-level marketing and money circulation schemes and what kind of activities attract the provisions of the Prize, Chit and Money Circulation Schemes(Banning) Act (PCMCSA), 1978 and what does not.
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Three different departments of the government--consumer affairs, corporate affair and financial services-- are working at various levels to clear the air over this critical sector, but none have yet managed to lay down clear guidelines, even as India is ranked 11th among the countries having top direct selling businesses in 2009-10.
Officials in the know said in 2012, the department of consumer affairs formed the first IMG to suggest ways to resolve the vexed issue of segregating genuine direct selling activities from illegal money circulation models. The consumer affairs department was prompted to do so as protecting the right of consumers and controlling internal trade fell within its ambit.
However, the department of financial services (DFS) which was part of the committee, opined that since PCMCSA fell within its domain, it only should be given the task of framing rules or amending the Act. Officials said alongside, the corporate affairs ministry too stepped in as checking ponzi schemes was its responsibility. It was also entrusted to check corporate frauds and hence had a role in determining the fate of India’s direct selling industry.
DFS in the meantime, took upon itself the role of framing new rules under the PCMCSA. It constituted another inter-ministerial group to do this job. In October 2012, the DFS came out with a draft model rules and circulated it to all the states.
Officials said states had to be involved in framing rules or amendments to PCMCS, Act as it is implemented by the states despite being a central act. The draft rules framed by DFS failed to address the real issue and made all sort of direct selling activities illegal, which included pyramid marketing schemes and also genuine multi-level marketing firms.
As the genuine direct selling industry grew restive , the DFS assured that it will instead amend the PCMCSA, so that the impact is uniform across the country and states do not have to alter the rules.
Officials said corporate affairs ministry, which is headed by Sachin Pilot , meanwhile urged the department of consumer affairs to frame guidelines for genuine direct selling and multi-level marketing companies as internal trade falls within the ambit of consumer affairs.
The second IMG formed by DFS subsequently finished its work after it framed the draft model rules and decided to amend the Act . However, the tenure of the first IMG under consumer affairs was extended till April 2013 from August 2012, after corporate affairs department urged consumer affairs to have a look at the existing rules.
The DFS which was part of this original committee contended that it was in the process of amending the Act and therefore there was no need to look into it again.
The third and the latest IMG was formed after the Saradha scam on investment schemes, which was thoeretically different from direct selling, multi-level marketing or money circulation schemes. Even then, the group was mandated to review the PSMCSA as well. The problem as to what is legal multi-level marketing or illegal multi-level marketing– the reason why most direct sellers are under threat – remains as it is even as the government keeps on grappling with the definitions of MLMs, money circulation and other schemes.