Amazon, Flipkart in BIG Trouble: ED may summon both companies in investigation related to Law Violations
India’s financial crime agency, the Enforcement Directorate (ED), is preparing to summon executives from e-commerce giants Flipkart and Amazon as part of an intensified probe into potential foreign investment law violations. This follows recent raids on some of the sellers associated with these companies, according to a senior government official.
Increasing Regulatory Scrutiny in India’s E-Commerce Market
The move reflects India’s tightening regulatory grip on Walmart-owned Flipkart and Amazon amid their fast growth in the country’s $70 billion e-commerce market. Previously, an antitrust investigation found these companies had allegedly breached Indian regulations by favoring select sellers. Flipkart and Amazon have both asserted compliance with Indian laws, yet the ED has been probing allegations that these companies exercise control over certain inventory through selected sellers.
Foreign Investment Law and Marketplace Operations
Indian laws restrict foreign e-commerce players from directly holding inventory, mandating that they operate only as marketplaces for independent sellers. However, findings from recent raids and an antitrust inquiry suggest potential violations, indicating that these companies may maintain indirect control over inventory through preferred sellers.
Recent Raids and Upcoming Summons
Following last week’s raids, which extended into Saturday, the ED is reviewing documents seized from the sellers. According to a senior government official, preliminary findings suggest violations of foreign investment rules. The agency plans to analyze business records from these sellers, scrutinizing transactions and relationships with the e-commerce platforms over the past five years.
Market Share and Competitive Landscape
According to Datum Intelligence, Flipkart held a 32% market share and Amazon 24% in India’s e-commerce sector last year, which comprises about 8% of the country’s $834 billion retail market.
Allegations of Control Over Sellers
This investigation aligns with findings from a 2021 Reuters report based on internal Amazon documents, which alleged the company held considerable control over inventory through major sellers, despite Indian restrictions. Among the sellers raided was Appario, once Amazon’s largest seller in India, which had reportedly received special treatment, including lower fees and access to Amazon’s global retail tools for inventory management.
Broader Implications for Online Platforms
India’s regulatory focus on e-commerce and delivery platforms extends beyond Amazon and Flipkart. Recent antitrust findings indicate that food delivery giants Zomato and Swiggy may also have breached regulations by favoring certain restaurants on their platforms, raising broader questions about fair competition and market practices.
