Tuesday, 24 May, 2022
HomeIndiaGovernanceED begins probe against Amazon, Flipkart for ‘FDI norms violation’

ED begins probe against Amazon, Flipkart for ‘FDI norms violation’

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ED probe comes after NGO filed PIL alleging Flipkart, Amazon circumvented FDI norms by routing popular products through multiple entities.

New Delhi: The Enforcement Directorate has initiated an investigation into two cases of alleged foreign direct investment norms violation under the Foreign Exchange Management Act (FEMA) by e-commerce giants Amazon and Flipkart.

The move came after NGO Telecom Watchdog filed a public interest litigation in the Delhi High Court in July alleging that the two companies circumvented FDI norms by routing hot selling products through multiple entities or “controlled sellers”.

The high court issued a notice to Amazon, Flipkart and the Central government the same month, asking them to file a response by 11 November.

The ED filed its reply Wednesday saying that it has registered cases against the two companies under FEMA and said the investigation is under process.

An official with Flipkart, however, told ThePrint that the firm was compliant with Indian FDI laws.  “The government of India has allowed 100 per cent FDI in the e-commerce marketplace model and we are fully compliant with these FDI laws,” Rajneesh Kumar, Chief
Corporate Affairs Officer, Flipkart said. “At Flipkart, we are delighted to bring sellers across the country on the marketplace and contribute to India’s economic growth and innovation.”

There was no response from Amazon to requests for comment from ThePrint until the time of publishing this report.

Also read: Flipkart CEO Binny Bansal quits after allegations of serious personal misconduct: Walmart

What the petition says

Telecom Watchdog alleged that the e-commerce companies are routing popular products at much cheaper rates through proxy-controlled sellers, in turn pushing out small businesses and brick-and-mortar retailers, in a violation of FDI norms.

“Through the Name Lending companies (controlled sellers) they buy the branded goods in bulk (at discounts) from manufacturers rendering small sellers uncompetitive (sic) by a wide margin, thus influencing the prices in violation of FDI norms,” the petition read.

“As a consequence of this FDI norms violation, smaller sellers are unable to participate in the fast-growing e-commerce sector,” it added.

The petition also said that according to Press Note No 3 (2016 series) — guidelines issued by the Department of Industrial Policy and Promotion to regulate FDI in e-commerce — Amazon and Flipkart are not authorized to exercise ownership over the stock and cannot influence price of goods and services that are for sale in the open market.

Despite several complaints, the government has chosen to remain a mute spectator giving the e-commerce companies an open playground with their own rules, it added.

“No action has been taken against any such company till date which is highly disappointing,” the petition read.

It also said that large e-commerce companies, like Amazon and Flipkart, knew what products can be sold easily and quickly “without business risks (of not being sold)” due to their long experience in the online market.

“In marketplace activities, margins are slim, but if an entity stocks such hot-selling goods, it can make much bigger margins. This is the point of concern,” added the petition.

The case will next be heard on 19 November.

Also read: On extramarital affairs, Flipkart & Walmart had very different points of view

  •  The report has been updated with Flipkart’s response.

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  1. It is evident that India is unwilling to embrace globalisation in its true sense. There are too many legacy renters, like the APMCs, standing between producers and consumers, to the detriment of both. 2. There is a delicious irony in Jet Airways being acquired by the Tatas. For several years, Naresh Goyal wrote India’s civil aviation policy, succeeded in keeping out a consortium of Tatas and Singapore Airlines that would have taken over Air India and turned it around. The entire numerical soup of the FDI policy for various sectors bears the imprint of dominant local players who wanted to keep foreign competition out. It also compelled successful foreign firms to take local partners who brought little more to the table that networking ability. 3. There has been virtually no worthwhile conventional FDI in export oriented manufacturing in the last five years, which deepens the economy and creates employment. Foreigners are either buying shares – more recently bonds – or investing in service sector firms, as in the present case. Set the ED on them and kiss goodbye to serious investment.

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