Govt to summon Flipkart and Amazon over breaches of foreign investment law: Report

Govt to summon executives from Flipkart and Amazon as part of an intensified investigation into alleged violations of foreign investment laws, according to a report by Reuters. This move follows recent raids on some of the sellers associated with these e-commerce giants, according to a senior government source. The action underscores the increasing regulatory scrutiny facing Walmart-owned Flipkart and Amazon, whose sales are rapidly expanding in India's $70 billion e-commerce market. An antitrust investigation has already found that both companies breached laws by favouring select sellers, as reported by Reuters.

Amazon and Flipkart have consistently maintained that they comply with Indian laws. However, the Enforcement Directorate has been investigating allegations for years that the companies, through select sellers, exert control over the inventory of goods. Indian regulations prohibit foreign e-commerce entities from holding inventory, requiring them to operate solely as a marketplace for sellers. Following last week's raids on Amazon and Flipkart sellers, the federal agency plans to summon company executives and is currently reviewing documents seized during the operation, a senior government source involved in the case stated on Monday.

The searches, which continued until Saturday, confirmed violations of foreign investment rules, according to the government source who requested anonymity due to the confidential nature of the raid details. The Directorate will also examine business data from the sellers and their interactions with the e-commerce companies over the past five years, the official added. 

According to Datum Intelligence, Flipkart held a 32% market share and Amazon 24% in the Indian e-commerce sector last year, which represents about 8% of the $834 billion retail market. The recent raids were initiated following antitrust findings that indicated both platforms had "end-to-end control over the inventory, with sellers merely acting as name-lending entities." Sources familiar with the matter revealed that at least two of Amazon's sellers and four of Flipkart's sellers were raided last week.

In 2021, a Reuters investigation based on internal Amazon documents revealed that the company maintained significant control over the inventory of some of its largest sellers, despite Indian laws prohibiting such practices by foreign players. One source mentioned on Monday that Appario, once Amazon's largest Indian seller, was among those raided last week. Officials examined financial records and questioned executives about their dealings with the U.S.-based e-commerce giant. Appario was reportedly referred to internally as a "special" merchant, receiving discounted fees and access to Amazon's global retail tools for inventory management, unlike other sellers, the Reuters investigation found in 2021. Appario did not respond to a request for comment.

Online shopping and delivery platforms are facing increasing scrutiny in India amid complaints of unfair business practices harming smaller competitors. Reuters reported last week that the antitrust body also found food delivery giants Zomato and Swiggy in violation of laws for favouring select restaurants on their platforms.