Why Is ED Investigating Amazon and Flipkart? Raids Across India Explained

Enforcement Directorate is investigating possible violation of Foreign Direct Investment (FDI) code agreement between e-commerce giants Amazon, Flipkart, and government of India.

What's Issue?

re is suspicion that Amazon and Flipkart are violating Foreign Direct Investment (FDI) e-commerce rules. Under FDI rules, sellers cannot breach 25 per cent sales limit, that is, website cannot allow more than 25 per cent of its sales from one vendor or its group of companies. By breaching set limits, seller can influence sale price directly or indirectly, a situation ED wants to avoid. "Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from marketplace entity or its group companies." Ministry of Commerce said in a public statement.

Quick History

Earlier in November 2024, ED h raided 19 locations nationwide of sellers who conduct business on Amazon and Flipkart. Locations across Delhi, Bengaluru, and Hyderab were covered on a war footing. After covering sellers, ED's focus is now on e-commerce giants mselves. raid was for alleged non- compliance with Foreign Exchange Management Act (FEMA) and Foreign Direct Investment (FDI). 

As per a report by AllianceBernstein, a global investment and research firm, Flipkart's user base witnessed 21 per cent year-on-year growth, while Amazon witnessed a 13 per cent year on yar growth, reported PTI. se numbers imply that two e-commerce giants are important stakeholders in India's digital business. 

This is not first time Flipkart and Amazon are in deep waters. A show cause notice of 10,600 crore was issued to Flipkart by Competition Commission of India (CCI) for its alleged violation of FEMA Act in 2021. More recently Trers Industry Body, Confederation of All India Trers (CAIT) released a white paper raising serious concerns about e-commerce businesses recently, to avoid predatory pricing by e-commerce gaints.