Emu farming in Tamil Nadu in 2013 was always a Ponzi scheme. First introduced by Susi Emu Farms, the scheme promised a 100% return, along with the deposit within two years, for an initial deposit of Rs 1.5 lakh for rearing emus. VIP schemes offered better returns, and regular annuity payments.

Soon, hundreds of firms came up in Erode, Tiruppur, Coimbatore, Namakkal and Salem, with companies offering returns of Rs 2 lakh a month for an initial investment of Rs 10 lakh. An emu apparently fetched Rs 20,000, with its eggs priced at Rs 1,200 each.

When it collapsed, more than 15,000 investors complained, with promoters of 21 companies arrested for swindling more than Rs 500 crore. Over Rs 80,000 crore belonging to 60 million people is locked up in such Ponzi schemes. Consumer protection remains weak.

India’s financial regulators operate under Chinese walls — to each its own institution-specific jurisdiction. Informal deposit collection schemes, in underbanked Tier 2 and Tier 3 cities, lie off the regulatory radar.

Upon documentation, a lack of coordination between investigating agencies and the financial regulators, along with protracted legal proceedings, limit deterrence for potential fraudsters. With urban district consumer fora disposing of just 19% of cases within six hearings, the justice system remains hampered.

The State Depositors’ Protection Act offers a promising avenue. While 20 states have signed up, other laggards like Uttar Pradesh need to be pushed to enact it, in light of the Sahara group scams and its structurally underbanked population. Despite amendments to the Sebi Act for the regulatory body to act against unregistered entities raising Rs 100 crore or more, it has recovered just Rs 25 crore through 180 orders, a pittance.

India’s direct selling industry, estimated at Rs 72 billion, dominated by cosmetics and personal care, provides employment to five million (of which 60% are women). Beset by counterfeit products, sold through retail stores, the industry is often mistaken for Ponzi schemes. The Prize Chits and Money Circulation Schemes (Banning) (PCMCS) Act, 1978, has been often used to harass such firms.

The PCMCS Act should be amended to differentiate between direct-selling and Ponzi schemes, and fraudulent schemes identified through indicators such as income based on recruitment alone, entry or renewal fees that are redistributed and inventory loading (products pushed on participants). Firms offering non-refundable or non-returnable products and without a 24×7 call centre should be investigated.
The state government should have approval authority with compulsory accreditation of products from government quality institutes: such as food products à la Maggi or related products under the Food Safety and Standards Act enforced to ensure predetermined standards. The lack of definitional clarity continues to be a burden. We need a nodal ministry with an independent government legislation for direct selling, setting it apart from wholesale trade.

Consumer protection laws need significant modifications. The domicile of consumers should be considered the jurisdictional area for seeking redress in a dispute arising over the purchase of faulty goods and services, and not where the products are sold or services rendered. A Mumbai consumer on a tour to Delhi should not be forced to seek replacement or compensation for a substandard product from a Delhi consumer court.
Expanding the remit of the Consumer Protection Act could inject accountability into public service delivery. Any deficiency in welfare services to those below the poverty line should be penalised while shortcomings by contractors on government projects like roads should lead to them being hauled up in consumer courts.
The practice of going for an appeal to the National Consumer Redress Council in New Delhi in a case decided ex parte could be outsourced to the local state-level consumer court.

The inordinate delay in filling vacancies in consumer dispute redressal fora should also be corrected. Consumer court appointments can be depoliticised by appointing judges and members through the State Public Service Commission. Consumer judgments must be speeded up as well. A cooperative approach between the central and state governments is essential for uniform implementation of consumer protection laws.

The Standard of Weights and Measures Act, 1976, needs amendments too. While the Act requires commodity packing in prescribed weight, volume and count, manufacturers are given leeway on what amounts are to be packed with statutory wordings.

Packets should be printed with details of batch, maximum retail price, unit price and expiry date in indelible ink to prevent malpractice. As suggested by the Federation of Consumer Organisations of Tamil Nadu and Pondicherry, genetically modified food should be indicated on packets, with warnings on monosodium glutamate and other additive content.

We’re not short of policy provisions. Money circulation schemes were banned in 1978, after the Sanchayita Investments scandal. Chit funds arose, leading to the 1982 Chit Funds Act.

West Bengal’s notorious ‘public deposit schemes’ and their Rs 22,000-crore scam have exploited regulatory arbitrage, structured to be neither like a ‘collective investment scheme’ nor a ‘public deposit’. Every scam has brought in its own legislation, ex post. Being proactive, for the consumers, would bring dividends.