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

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

What's The Issue?

There is suspicion that Amazon and Flipkart are violating Foreign Direct Investment (FDI) e-commerce rules. Under FDI rules, sellers cannot breach the 25 per cent sales limit, that is, the website cannot allow more than 25 per cent of its sales from one vendor or its group of companies. By breaching the set limits, the seller can influence the 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 the marketplace entity or its group companies." the Ministry of Commerce said in a public statement.

Quick History

Earlier in November 2024, the ED had raided 19 locations nationwide of sellers who conduct business on Amazon and Flipkart. Locations across Delhi, Bengaluru, and Hyderabad were covered on a war footing. After covering the sellers, ED's focus is now on the e-commerce giants themselves. The 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. These numbers imply that the two e-commerce giants are important stakeholders in India's digital business. 

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