ED to summon Amazon, Flipkart executives over investment law violations
What's the story
India's Enforcement Directorate (ED) will summon executives of e-commerce giants Amazon and Flipkart, as part of an ongoing probe into alleged foreign investment law violations, according to Reuters.
The development comes after the ED recently raided several sellers of the two firms.
The raids were part of a nationwide operation, including searches at seller locations and company subsidiaries in major Indian cities like Delhi, Bengaluru, Mumbai, and Hyderabad.
Market expansion
Regulatory scrutiny intensifies amid rapid e-commerce growth
The looming action against Amazon and Flipkart comes at a time when the two companies are witnessing tremendous growth in India's $70 billion e-commerce market.
The move also marks an uptick in regulatory scrutiny for the two firms.
Notably, despite the ongoing investigation, both Amazon and Flipkart have maintained that they are compliant with all Indian laws.
Investigation focus
ED probes potential control over goods inventory
The ED's probe mainly revolves around allegations that Amazon and Flipkart may have controlled the inventory of goods through select sellers.
The practice, if proven, would violate Indian laws that forbid foreign e-commerce entities from holding inventory for sale on their platforms.
The companies are only allowed to function as marketplaces for different sellers.
Transaction review
Reviewing transactions for potential PMLA violations
Now, the ED is examining if any PMLA violations have taken place through transactions on Amazon and Flipkart.
After last week's raids, the agency intends to summon company executives and is examining documents seized during the operation.
The searches, which spanned 19 locations across India, have reportedly given evidence of foreign investment rule violations.
Data analysis
ED to analyze business data from sellers
The ED also intends to examine business data of sellers and their transactions with the e-commerce companies in the last five years.
This comes as part of the agency's thorough investigation into possible violations of foreign investment law.
The identities of the particular sellers involved in these raids have not been revealed yet.
Market dominance
Amazon, Flipkart dominate India's e-commerce market
According to Datum Intelligence, Flipkart and Amazon accounted for 32% and 24% of the Indian e-commerce market share last year, respectively.
This segment constitutes about 8% of India's $834 billion retail industry.
The latest ED raids were launched after antitrust investigation findings indicated that these platforms had a major control over inventory and sellers.
Seller scrutiny
ED raids select sellers linked to Amazon, Flipkart
Sources have also revealed that at least two of Amazon's sellers and four of Flipkart's sellers were targeted in the recent ED raids.
One such seller, Appario, which was previously Amazon's largest Indian seller, was among those raided.
During these raids, officials inspected financial records and questioned executives about their dealings with the US-based e-commerce giant.