India Set to Question Amazon and Flipkart Executives Over Regulatory Concerns

India's financial crime agency has announced plans to summon executives from Amazon and Flipkart to address allegations of foreign investment law violations, marking a significant escalation in the country’s regulatory scrutiny of major e-commerce firms. This decision follows raids conducted last week on the sellers of both Amazon and Flipkart, where documents were seized as part of a probe into the companies’ compliance with Indian e-commerce regulations.

According to a senior government source, the Enforcement Directorate (ED) will conduct a review of the documents obtained during the raids and examine business transactions between the sellers and these e-commerce giants over the past five years. The investigation centers around allegations that Amazon and Walmart-owned Flipkart may have exerted "end-to-end control" over some sellers, a practice that would be in violation of Indian foreign direct investment (FDI) regulations.

Under current Indian laws, foreign e-commerce players are restricted to operating a marketplace model, which prohibits them from holding inventory of goods directly. Instead, they are required to provide a platform for independent sellers, thereby creating a level playing field for local businesses. However, findings from India’s antitrust investigation last year reported that both Amazon and Flipkart allegedly used select sellers to exercise greater control over product inventory, a tactic that would give them an unfair advantage over other marketplace sellers.

The financial crime agency’s probe into Amazon and Flipkart comes amid a rapidly expanding e-commerce market in India, which has an estimated value of $70 billion. Data from Datum Intelligence shows that Flipkart holds a 32% market share in the sector, while Amazon follows with a 24% share. The large market presence of these companies has drawn the attention of regulators, who are concerned about potential monopolistic practices and the impact on smaller, local businesses.

The investigation further revealed that some of the biggest sellers on these platforms, such as Amazon’s former largest seller Appario, received preferential treatment. According to a Reuters report from 2021, Appario was provided access to Amazon's global retail tools and enjoyed discounted fees, placing it in a highly competitive position compared to other sellers. Last week’s raid on Appario and other Amazon and Flipkart sellers involved the inspection of financial documents and questioning of executives about their relationship with these e-commerce giants.

The matter of fact is that both Amazon and Flipkart continue to state that they are compliant with Indian laws Only the business environment in India has become increasingly hostile. Accusations of unfair practices within the e-commerce industry have emerged regularly and often are concerned with market leaders’ attempts to dominate small businesses and offer preferential treatment to their selected sellers.

This upward regulatory pressure is bidding for more compliance and governance measures from e-commerce companies in India, operating in the industry that accounts for 8% of $834 billion retail business in the country. The ongoing probe may cause more actions to reign in operations to ensure compliance particularly as India continues to protect its domestic retail market from undue interference by foreign entities.