Direct selling involves more than just selling products; it is about offering hope in the form of the possibility of establishing an independent business without the need for the kind of capital required by traditional retail, and of making a living through discipline, product knowledge, customer relationships, and personal goodwill.
The aspiration is worth respecting and should have a business model to back it.
The Indian Direct Selling Industry Outlook 2025 states that the industry's turnover was ₹23,021 crore with 93.2 lakh active direct sellers in FY24–25. These figures show how large the sector is, but they do not prove the commercial viability of individual businesses, the sustainability of their MLM compensation schemes, or the earnings of individual participants.
The India Consumer Protection (Direct Selling) Rules of 2021 address unfair trading practices and ban pyramid schemes, as well as money-circulation schemes carried out in the name of direct selling. Furthermore, the Rules lay down duties on direct-selling organisations and on the individual direct sellers concerning consumer information, written contracts, the handling of complaints, claims and the supervision of operations carried out in the field.
The fact that a company complies with the law does not in itself prove that it is commercially sustainable.
For DPIIT, and for any future policy framework affecting the sector, the question should extend beyond whether an enterprise is legal.
“Can the business honour its commitments to the direct sellers it recruits?”
The Financial Test
The consequences for the direct seller go well beyond expenses in the areas of travel, telecommunications, training and working capital when a direct-selling company ceases to be commercially viable, pulls out of the market or closes down; they can also involve personal credibility, the relationships with downlines and customers and the many years of effort that have been put into building the business.
Where earnings that are linked to a network of direct sellers retailing products are determined by the company's contractual arrangements and depend on the continued operation of the systems, the establishment of such a network is not the same as obtaining an independently transferable business asset. It is necessary to make this limitation clear when recruiting.
The central question is straightforward: Is the MLM compensation plan mathematically viable for the direct selling enterprise as a whole, or merely attractive in a presentation?
The answer requires far more than a headline payout percentage.
A credible assessment should reconcile net sales realisations with product costs, fulfilment costs, operating expenses, taxes, returns, refunds, commissions and incentives on product sales. It should distinguish profitability from liquidity and test whether the company can meet valid obligations when they fall due.
Stress-testing should account for slower recruitment, weaker repeat purchases, increased returns, changing product demand and a maturing direct seller network. Where committed payouts and operating costs persistently exceed what genuine retail sales can support, growth does not solve the problem. It merely postpones it.
Sales targets require similar scrutiny. A target dependent on inventory loading, excessive personal purchases, artificial transactions, pressured sales or rushed recruitment may create reportable volume without creating durable customer demand.
Four Layers, One Assessment
DPIIT should consider a framework that examines direct-selling operations using multi-level compensation plans, across four connected layers.
The purpose is not to eliminate legitimate commercial risk or guarantee business success. It is to reconcile what the company promises with how its system operates, what the field communicates and what the financial records show.
- Official layer: Review contracts, policies, compensation plans, product terms, return and refund rules, formal claims, sales targets, rank qualifications and incentive conditions.
- System layer: Examine enrolment flows, genealogy, transaction coding, qualifying-volume rules, commission algorithms, back-office controls and withdrawal processes. Test whether the software faithfully implements the published compensation plan and contractual commitments.
- Field layer: Review webinars, leader instructions, WhatsApp and Telegram communications, social-media content and individual representations. Establish whether the opportunity promoted in the field matches the company’s formal terms and approved claims.
- Financial layer: Trace bank flows, payment gateways, wallets, commissions, reversals, related-party transfers and virtual digital assets, where relevant. Reconcile these movements with commission liabilities, unpaid entitlements, conditional obligations, releases and settlements.
These layers should not become disconnected checklists. Their value lies in exposing contradictions between official documents, system logic, field conduct and financial records.
Unpaid Does Not Mean Extinguished
Unpaid sales volume and earned commission are not interchangeable concepts.
An assessment must distinguish among:
- Potential rewards that have not yet vested.
- Amounts that have been earned and are contractually payable.
- Conditional entitlements subject to stated qualification, return, refund, clawback or verification conditions.
- Obligations that have been validly discharged, cancelled or allowed to expire under clear and enforceable contractual terms.
For entities applying Ind AS, and where the obligation is a financial liability within the scope of Ind AS 109, paragraph 3.3.1 permits derecognition only when the contractual obligation is extinguished, that is, discharged, cancelled or expired.
Accordingly, a review should test the contractual, operational and accounting basis for every material release of an unpaid entitlement into profit or loss. Inactivity, delayed withdrawal or lack of engagement should not automatically be assumed to extinguish an otherwise valid obligation.
The company’s use of cash pending settlement is a separate issue from whether the obligation has been extinguished. A credible assessment should examine both the accuracy of liability recognition and the liquidity available to honour legitimate outstanding commitments.
Public Confidence Is at Stake
The credibility problem facing direct selling should not be reduced to public confusion between legitimate businesses and MLM operations operating illegal money-circulation schemes, pyramid schemes, or collective investment arrangements without required registration.
That is only part of the issue.
Public confidence is also weakened when businesses presented as legal, compliant and professionally managed, whether Indian or international, withdraw from the market, close down or become commercially unviable.
Commercial failure is not proof of fraud. However, that distinction does not restore lost time, disrupted income, damaged relationships or the confidence of a direct seller who has spent years developing customers and a network.
A commercially unsustainable and legally compliant enterprise can cause lasting damage to public confidence in the direct-selling sector.
Without integrated scrutiny, preventable structural weaknesses may remain unexamined until the field bears their consequences. Policy should therefore encourage periodic reassessment, review of material compensation-plan changes and credible arrangements for settling valid commissions, processing returns and communicating market exits.
No framework can guarantee success. It can, however, make commitments more transparent and expose unsustainable economics earlier.
This is not an argument for the government to underwrite private enterprise or protect every participant from ordinary commercial risk. It is an argument for boards and policymakers to distinguish normal business uncertainty from structural weaknesses that should be identified before recruitment expands further.
Consumer protection and commercial sustainability are complementary responsibilities. Protecting the transaction is essential. Protecting the integrity of the earning opportunity deserves equal attention.
India does not need more direct-selling enterprises that recruit on hope alone. It needs enterprises and policy frameworks designed to honour it.
(Pranjal R Daniel is Chief Strategist, Strategy India (Direct Selling MLM Consulting) | He has been in the direct selling MLM industry for over 26 years with a data-backed record of analysing over 15,500 MLM operations in India.)
