The Enforcement Directorate (ED), India’s financial crime agency, is set to summon executives from Flipkart and Amazon as part of a broader investigation into alleged violations of foreign investment laws. This development follows recent raids conducted on some sellers affiliated with these e-commerce platforms, according to a senior official within the government.
This anticipated action reflects increasing regulatory scrutiny towards Walmart-owned Flipkart and Amazon, particularly as their sales surge in India’s burgeoning e-commerce market, which is valued at around $70 billion (approximately Rs. 5,93,614 crore). A preceding antitrust investigation indicated that both companies have contravened laws by preferentially supporting certain sellers, as reported by Reuters.
While both Amazon and Flipkart assert that they adhere to Indian regulatory standards, the ED has been looking into allegations suggesting that these firms, via specific sellers, exert control over their inventory management.
Indian regulations explicitly prohibit foreign e-commerce enterprises from managing inventory of goods sold through their platforms, compelling them to function solely as marketplaces for sellers.
Following last week’s raids on Amazon and Flipkart sellers, the ED plans to call in company executives and is currently examining documents seized during its operation, revealed the government source involved in the investigation.
The searches, which concluded on Saturday, have provided evidence of potential violations related to foreign investment rules, according to the source, who requested anonymity due to the sensitive nature of the investigation.
The ED is also set to review business data from these sellers and their transactions with the e-commerce giants over the past five years, the official noted.
Neither Amazon, Flipkart, nor the ED responded immediately to inquiries from Reuters.
Control Over Inventory
According to estimates from Datum Intelligence, Flipkart held a 32 percent market share in India’s e-commerce sector last year, while Amazon accounted for 24 percent. The sector represents about eight percent of the country’s total retail market, valued at approximately $834 billion (around Rs. 70,37,303 crore).
The recent raids were instigated by findings from the antitrust investigation which suggested that the platforms exercised “end-to-end control over inventory,” leading to the characterization of sellers as entities merely lending their names.
Sources familiar with the matter reported that at least two sellers affiliated with Amazon and four sellers associated with Flipkart were subject to the recent raids.
A 2021 investigation by Reuters, based on internal Amazon documents, revealed that the company maintained substantial control over the inventory of some top sellers, despite Indian laws prohibiting such practices for foreign entities.
One source disclosed on Monday that Appario, previously the largest seller on Amazon in India, was among those raided last week, during which officials scrutinized financial records and questioned executives regarding their interactions with the U.S.-based e-commerce corporation.
Internal references indicated that Appario was labeled a “special” merchant, enjoying reduced fees and access to Amazon’s extensive retail tools for inventory management, advantages not available to other sellers as per the Reuters investigation.
Appario has not responded to requests for comment.
There is increasing scrutiny of online shopping and delivery platforms in India due to complaints regarding unfair business practices that disadvantage smaller players. Recently, Reuters reported that the antitrust regulator also discovered that food delivery services Zomato and Swiggy violated regulations by favoring specific restaurants within their applications.
© Thomson Reuters 2024
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