ED probing Amazon, Flipkart's relationships with sellers for FDI violations
The Enforcement Directorate (ED) is now looking into the relationships between e-commerce giants Amazon and Flipkart, and their sellers. The probe seeks to establish if these partnerships have violated foreign direct investment (FDI) norms. Earlier, the investigation focused on the sellers but now it has turned toward the e-commerce companies. The main goal is to find out if these firms were controlling their vendors, which would breach regulations.
ED conducted nationwide searches at 19 sites
Earlier this month, the ED had launched nationwide searches at 19 locations connected to major sellers on Amazon and Flipkart. The operations were carried out across New Delhi, Bengaluru, and Hyderabad. An official said to The Economic Times, "The sellers covered during the searches were summoned and have been questioned to explain certain transactions and arrangements." The agency is now closely examining the documents seized during the searches.
Questioning key managerial personnel
The official further revealed that once all search-related documents are studied and people linked to them are questioned, important managerial personnel—who handle FDI of the company—will be asked to join the probe. This indicates a shift in focus from sellers to the e-commerce companies themselves. The issue under investigation dates back to 2019, according to a person associated with one of these firms.
ED investigates potential price influence and sales limit breach
The ED is also looking into if these platforms had any role in manipulating prices, and if the sellers breached the 25% sales limit. "ED has collected enough material to ask the companies to explain their side," one of the persons said. Executives from both Amazon and Flipkart have denied any wrongdoing, reiterating that they have previously clarified their position to authorities.
FDI rules and compliance measures by e-commerce companies
India's FDI rules don't allow e-commerce firms with foreign investment to operate on an inventory-based model. In December 2018, new regulations were introduced disallowing these firms from directly or indirectly holding any stake in sellers or having any sway over them. No single seller should contribute to over 25% of the sales of a single platform. Following these tightened norms, both Amazon and Flipkart have either shut down or divested stakes in major sellers listed on their platforms.
