Whose charge?

Raising questions about who has the powers to regulate India's direct-selling sector, Corporate Affairs Minister Sachin Pilot recently wrote to the consumer affairs department, urging it to frame guidelines for the sector.

Officials said Pilot's letter urged the consumer affairs department to expedite framing of relevant guidelines to ensure that bona fide direct marketing companies engaged in legitimate business were distinguished from the fraud ones.

However, officials in the consumer affairs department are wary of framing guidelines. They fear their guidelines might not have any legal sanctity as the mother Act is being amended by the Department of Financial Services (DFS). "We have no problem in framing the guidelines for the direct-selling industry. But will that have a proper legal sanctity as already DFS is in the process of making amendments to the Prize Chits and Money Circulation Schemes (Banning) Act, 1978?" asked an official.

"The biggest problem with the direct-selling sector is that it does not have a nodal ministry," said a sector expert.

Earlier, too, officials said the department had tried to frame guidelines for direct selling business, but was stopped from doing so by the DFS as the Prize Chits and Money Circulation Schemes (Banning) Act fell within its purview.

While the consumer affairs department has the rights over it because internal trade falls within the ambit of consumer affairs, trading is under Department of Industrial Policy and Promotion (DIPP). However, because the Act regulating the sector has been framed by the DFS, it too comes into the picture. The corporate affairs ministry also has a role, the expert explained.

Till date, the government has formed three different inter-ministerial groups working in tandem - the latest one was constituted after the Saradha scam. However, there is still no clarity over the 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.

Three different government departments - consumer affairs, corporate affairs and financial services - are working at various levels to clear the air over this critical sector, but none has yet managed to lay down clear guidelines.

Recently, the government had promulgated an ordinance to amend the Sebi Act to regulate collective investment schemes, which in their nomenclature and nature of operation is different from direct selling.

According to officials, in direct selling, money is not circulated from one person to another in a chain format, but it is in circulation in collective investment, pyramid, money circulation and chit fund schemes.

Often, because of ambiguity of definition and unclear rules, genuine direct selling companies, too, are clubbed as money circulation under the existing Price, Chits and Money Circulation Schemes (Banning) Act - 1978. The Act, which is under modification in the light of Saradha scam, does not clearly define what exactly is a genuine direct selling business and what is a fraud one.

India is ranked 11th among the countries in terms of direct selling businesses in 2009-10.