ED Conducts Searches on Premises Linked to Key Vendors of Amazon and Flipkart

Sub : Eco

Sec: External sector

Investigation Under FEMA:
- The Enforcement Directorate (ED) conducted searches at 19 premises across Delhi, Bengaluru, Mumbai, Hyderabad, and Panchkula, targeting main vendors linked to Amazon and Flipkart.
- These searches are part of an investigation under the Foreign Exchange Management Act (FEMA) due to alleged FDI rule violations by Amazon and Flipkart.
Allegations of FDI Rule Violations:
- Complaints have been filed against the e-commerce giants for directly or indirectly influencing the sale prices of goods and services.
- It is alleged that they are not providing a level-playing field for all vendors, which disadvantages smaller vendors and businesses on these platforms.
Concerns Raised by Trade Bodies:
- CAIT and other trade organizations have been highlighting these issues for several years, arguing that the anti-competitive practices of Amazon and Flipkart negatively impact small traders and kirana stores.
Competition Commission of India’s Action:
- Previously, the Competition Commission of India (CCI) issued penalty notices to Amazon, Flipkart, and their preferred sellers for engaging in anti-competitive practices.
- These practices are believed to have harmed small traders, limiting their ability to compete in the marketplace.

Models for E-Commerce Services in India

Inventory Model: In this model, the e-commerce entity owns the inventory and sells directly to consumers. However, FDI (Foreign Direct Investment) is not allowed in inventory-based e-commerce to protect small, unorganized retailers from being overpowered by large foreign companies.
Marketplace Model: E-commerce companies act as intermediaries, providing a platform for third-party vendors to sell directly to consumers. 100% FDI is allowed in this model under the automatic route, meaning foreign investment can flow without government approval, encouraging large global companies to enter the market as facilitators rather than retailers.

Restrictions on E-Commerce Operations

Exclusive Selling Restrictions: E-commerce platforms cannot enforce exclusive selling agreements with sellers, and they must provide “fair and non-discriminatory” access to their services (e.g., logistics, payments, advertising) to all vendors equally.
Inventory Sourcing Limits: Vendors who purchase 25% or more of their inventory from an e-commerce group company (i.e., owned by the e-commerce entity) are restricted from selling on that entity’s platform. This is to prevent large e-commerce companies from indirectly controlling sellers and influencing prices.