Flipkart, Amazon executives to be summoned by ED over alleged foreign investment violations

Flipkart, Amazon under scrutiny for foreign investment violations India’s Enforcement Directorate (ED) is set to summon senior executives from Flipkart and Amazon as part of an ongoing investigation into potential violations of foreign exchange and investment laws, a senior government official confirmed to Reuters on Monday. This move follows recent raids on sellers affiliated with […] The post Flipkart, Amazon executives to be summoned by ED over alleged foreign investment violations appeared first on PGurus.

Nov 11, 2024 - 17:37
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Flipkart, Amazon executives to be summoned by ED over alleged foreign investment violations
ED ramps up investigation into e-commerce giants, signaling heightened regulatory scrutiny

Flipkart, Amazon under scrutiny for foreign investment violations

India’s Enforcement Directorate (ED) is set to summon senior executives from Flipkart and Amazon as part of an ongoing investigation into potential violations of foreign exchange and investment laws, a senior government official confirmed to Reuters on Monday.

This move follows recent raids on sellers affiliated with the two e-commerce giants and signals increased regulatory scrutiny of their operations in India’s fast-growing $70 billion e-commerce market.

The investigation has intensified after Indian antitrust regulators found that Flipkart and Amazon had breached competition laws by allegedly favoring select sellers on their platforms. Both companies have denied these allegations and maintain that they comply with all Indian laws. However, the ED has been probing the companies for years over accusations that they have used certain sellers to exert control over their inventory, a practice that is prohibited under Indian foreign investment regulations.

Under Indian law, foreign e-commerce companies are not allowed to hold inventory or directly sell goods on their platforms. They can only act as marketplaces for third-party sellers. The ED’s investigation into Amazon and Flipkart centers on allegations that the companies, through select sellers, effectively control the inventory of goods listed on their platforms. This would constitute a violation of foreign investment rules, which prohibit foreign firms from owning inventory on their marketplaces.

According to a senior government source familiar with the case, the Enforcement Directorate has reviewed documents seized during last week’s raids on Amazon and Flipkart sellers. The raids, which lasted until Saturday, appear to have substantiated claims of violations of the foreign investment law. The source also confirmed that the ED is analyzing business data from the sellers and their interactions with the two e-commerce platforms, covering at least the past five years.

The summoning of Flipkart and Amazon executives highlights the growing regulatory pressure on the companies as they continue to expand their footprint in India. With Flipkart (owned by Walmart) holding a 32% share of India’s e-commerce market and Amazon accounting for 24%, the companies are key players in a rapidly expanding sector that is reshaping the retail landscape.

This latest development follows an antitrust investigation into Amazon and Flipkart, which found that the platforms exerted “end-to-end control over inventory” and allowed certain sellers to operate as “name lending enterprises.” These findings were a key trigger for the recent raids. At least two sellers of Amazon and four sellers of Flipkart were reportedly raided last week, with officials inspecting financial records and questioning executives about their business dealings with the two companies.

One of the key sellers targeted in the raids was Appario, once Amazon’s largest seller in India. Appario was described in internal Amazon documents as a “special” merchant, receiving preferential treatment in the form of discounted fees and access to Amazon’s global retail tools, including inventory management systems. This raises further concerns about the e-commerce giant’s compliance with local laws, which prohibit foreign firms from controlling seller inventory.

The regulatory crackdown on Amazon and Flipkart comes amid broader concerns in India over the dominance of online shopping platforms and the impact on smaller businesses. Complaints about unfair business practices, such as favoring select sellers, have led to increased scrutiny of online retail giants.

Earlier this year, India’s antitrust body also found that food delivery platforms Zomato and Swiggy violated competition laws by giving preferential treatment to certain restaurants.

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The post Flipkart, Amazon executives to be summoned by ED over alleged foreign investment violations appeared first on PGurus.

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