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 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 ED filed its reply 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 that the firm was compliant with Indian FDI laws. “The government of India has allowed 100 percent 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.”
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 Print