India is reportedly set to summon executives from Amazon and Flipkart to strengthen investigations into alleged violations of foreign investment laws

According to the Zhitong Finance APP, a senior source from the Indian government stated that the Indian financial crime agency will summon executives from India's largest e-commerce retailers Flipkart and Amazon (AMZN.US) to strengthen the investigation into alleged violations of foreign investment laws. A few days ago, the agency conducted raids on some e-commerce sellers.

Flipkart, owned by Walmart (WMT.US), and Amazon are rapidly increasing their sales in India's $70 billion e-commerce market, and this plan indicates that regulators are tightening their scrutiny of the two companies. Reports suggest that an antitrust investigation in India has also found that these two companies favor specific sellers, violating the law.

Amazon and Flipkart have consistently claimed that they comply with Indian laws, but the Indian enforcement agency has been investigating allegations that the two companies control product inventory through selected sellers for years.

Indian law prohibits foreign e-commerce companies from holding inventory of goods that can be sold on their websites, forcing them to operate only as a seller marketplace.

A senior government source directly involved in the case stated on Monday that after the agency's raid on Amazon and Flipkart sellers last week, federal agencies now plan to summon company executives and are currently reviewing documents seized from sellers during the operation.

Government sources indicated that the raids continued until Saturday and confirmed that there were violations of foreign investment rules.

The official added that the agency will also analyze the business data of the sellers, as well as their transactions with e-commerce companies over the past five years.

Amazon, Flipkart, and the Indian enforcement agency did not immediately respond to requests for comment.

"End-to-end control"

Datum Intelligence estimates that last year, Flipkart held a 32% share of the Indian e-commerce market, while Amazon held 24%, accounting for about 8% of the $834 billion retail industry.

The recent raids were triggered by the results of an antitrust investigation into Amazon and Flipkart, which stated that these platforms "have end-to-end control over inventory, with sellers merely nominally lending their businesses."

Two other sources directly familiar with the matter indicated that at least two Amazon sellers and four Flipkart sellers were raided last week.

An investigation conducted in 2021 based on internal Amazon documents showed that the company exerted significant control over the inventory of some of its largest sellers, despite Indian laws prohibiting foreign companies from doing so.

One of the sources stated on Monday that Appario, which was once Amazon India's largest seller, was also among those raided last week, during which officials examined financial books and questioned executives about their dealings with the U.S. e-commerce giant.

A 2021 investigation found that Appario was internally referred to as a "special" merchant, different from other sellers, as it received discounted fees and could use Amazon's global retail tools for inventory management and other aspects.

Appario did not respond to requests for comment.

Due to complaints about unfair business practices harming smaller participants, online shopping and delivery platforms in India are facing increasing scrutiny. Reports last week indicated that antitrust agencies also found that food delivery giants Zomato and SoftBank-backed Swiggy violated competition laws due to their business practices favoring chain restaurants on their platforms