ED shifts focus in E-commerce probe to Amazon, Flipkart's FDI compliance

The Enforcement Directorate (ED) has expanded its investigation into the operations of Amazon and Flipkart, focusing on whether the companies’ arrangements with their vendors violate India’s Foreign Direct Investment (FDI) norms. Initially, the ED probe centered on the sellers on these platforms, aiming to determine if the e-commerce giants were exerting undue control over their vendors. According to FDI rules, companies like Amazon and Flipkart are permitted to operate only as online marketplaces, without controlling the inventory or pricing of third-party sellers.

The investigation, which dates back to 2019, gained momentum earlier this month when the ED conducted searches at 19 locations across Delhi, Bengaluru, and Hyderabad. These sites were linked to major sellers on both platforms, and the searches were prompted by the discovery of potentially actionable evidence. While the first phase of the probe targeted the sellers themselves, the focus has now shifted to the e-commerce companies.

In response, executives from Amazon and Flipkart have denied any wrongdoing. They emphasized that the companies have consistently clarified their position to authorities and remain confident that they are fully compliant with FDI regulations. One executive stated that the FDI norms are stringent, and with the digital trail of transactions, it is virtually impossible to violate these norms.

This shift in focus signals an intensifying regulatory scrutiny of the practices of large e-commerce platforms in India, as authorities seek to ensure that foreign investments in the sector adhere to the country’s rules on fair competition and market operations.