India’s e-commerce companies have been allegedly skirting FDI regulations for years, but it appears that matters are finally coming to a head.
India’s Enforcement Directorate (ED) will summon the executives of Amazon and Flipkart, ET reports. These summons follow raids at Amazon and Flipkart warehouses last week. The raids were reportedly a part of an investigation into alleged FDI violations by these e-commerce companies.
The raids had taken place under the Foreign Exchange Management Act at 19 premises located in Delhi, Bengaluru, Mumbai, Hyderabad and Panchkula, which belonged to vendors of Amazon and Flipkart. The raids had taken place following several complaints against the two e-commerce platforms. ED had said the e-commerce entities providing marketplace services were violating FDI rules by directly or indirectly influencing the sale price of goods or services, and not providing level playing field for all the vendors.
These developments come after India’s Commerce Minister had lambasted Amazon for circumventing India’s e-commerce laws. Goyal had specifically named Amazon and said that e-commerce companies were making thousands of crores of losses in India for years, but was likely designed to eliminate competition and eventually raise prices. He’d even said that e-commerce companies were paying “thousands of crores” to lawyers to prevent cases being fought against their practices in courts. “They paid a thousand crores to “professionals”,” Goyal had said. “But I’d love to know which chartered accountants, professionals, lawyers get a thousand crores. Unless you’re paying all the top lawyers to block them so that nobody can fight a case against you. You can take retainership with all the top lawyers and then there’s nobody left to fight against,” he had added.
Goyal had also said that e-commerce companies had also created Indian “entities” that helped them illegally circumvent FDI regulations. “They are after all an e-commerce platform. They are not allowed to do B2C. The e-commerce platform legally cannot do business to consumer. They create entities, where Indians sadly contribute to making those entities. Then they get caught so they start closing down those entities,” he added.
India’s FDI laws don’t allow foreign-owned e-commerce companies to hold inventory. As such, these companies are only allowed to operate as a marketplace that simply connects buyers and sellers. But these companies had created joint entities with Indian companies — such as Narayan Murthy’ Cloudtail, which was created with Amazon — to effectively circumvent these regulations. There have also been accusations that these companies favour select sellers on their platform which is also a violation of FDI rules. But with ED now on the case with raids on warehouses and summons of top executives, it appears that the heat is finally on foreign e-commerce firms which have cornered a large part of the market in India.