(Source: Reuters) India’s financial crime agency, the Enforcement Directorate (ED), has raided the offices of several sellers operating on Amazon and Flipkart, marking the latest development in a growing investigation into alleged violations of the country’s foreign investment laws. The raids, which took place across major cities including New Delhi, Mumbai, and Bengaluru, are part of a broader probe into whether the e-commerce giants have circumvented regulations that govern foreign investments in multi-brand retail.
The searches come just weeks after India’s antitrust body concluded an investigation that found Amazon and Flipkart, both key players in India’s booming e-commerce market, had violated competition laws by giving preferential treatment to select sellers on their platforms. Both companies have denied the allegations and maintain that they fully comply with Indian laws.
According to government sources, the raids are part of the ED’s ongoing investigation into how these platforms may have indirectly influenced the pricing of goods sold on their sites, potentially violating India’s foreign exchange regulations and undermining a level playing field for all sellers.
Sellers Targeted in Ongoing Probe
While the names of the sellers involved in the raids have not been disclosed, one source confirmed that the investigations span 19 locations across India. The ED’s focus appears to be on how Amazon and Flipkart manage their marketplace operations, with particular attention on whether they have bypassed restrictions that prohibit foreign companies from holding inventory in the country.
The raids come at a challenging time for Amazon and Flipkart, which have long viewed India as a critical growth market. E-commerce sales in the country are soaring, and both platforms have made substantial investments to expand their presence. However, the companies have faced increasing scrutiny from Indian regulators, who have raised concerns over the potential anti-competitive practices and violations of foreign investment rules.
Antitrust Allegations Add to Pressure
The investigation is closely linked to a report released by India’s competition watchdog in August, which revealed that Amazon and Flipkart had a “tight grip” over the sellers on their platforms, potentially giving them undue control over inventory management. These findings, although not yet made public, were reportedly based on evidence that showed Amazon had significant influence over some of its largest sellers, despite Indian laws restricting foreign companies from directly controlling inventory in the country.
A 2021 Reuters investigation based on internal Amazon documents highlighted how the company allegedly exerted substantial control over its largest sellers, further fueling concerns that Amazon had been skirting regulations. The report also suggested that Flipkart had engaged in similar practices, including channeling investments to its preferred sellers.
Ministerial Criticism Intensifies
India’s Commerce Minister, who has previously been vocal in criticizing Amazon’s operations in the country, echoed concerns in August, accusing the company of using its investments in India to cover up business losses. He described these losses as indicative of “predatory pricing,” a practice where companies intentionally sell goods at a loss to undercut local competition and establish dominance in the market.
Amazon and Flipkart have both denied any wrongdoing, and neither company responded immediately to requests for comment following the raids. A representative of the Enforcement Directorate also declined to comment on the ongoing investigations.
As Amazon and Flipkart face increasing regulatory pressure, their future operations in India may hinge on how they navigate the complex landscape of foreign investment laws and antitrust regulations. These raids, combined with heightened scrutiny from both financial and competition authorities, could signal a significant shift in the regulatory environment for e-commerce in India, where online retail continues to grow at a rapid pace.
Ongoing Investigations
The ED’s investigation into Amazon and Flipkart’s compliance with foreign investment rules is ongoing. As India’s e-commerce giants work to expand their influence in one of the world’s largest consumer markets, the outcome of these investigations could have far-reaching implications for their operations in the country.
