FDI in ecommerce under ED Scrutiny 

The Enforcement Directorate (ED) has uncovered direct links between Amazon, Flipkart, and their preferred sellers, alleging violations of FDI rules.

Key findings, on quizzing “top” five sellers, include:

• Preferred sellers are often linked to former employees or associates, with their inventory, profit margins, and even bank accounts allegedly controlled by the e-commerce giants.
• Sellers with massive turnovers report minimal profits, raising red flags about manipulated margins.
• Issues with the “Just in Time” (JIT) stock-gathering model, suggesting it violates FDI rules by reducing the marketplace to a multi-brand platform for the giants’ benefit.

By controlling inventory, warehouses, and profits, Amazon and Flipkart are accused of undermining the FDI norm’s purpose of fostering a fair marketplace for small retailers. ED plans to file a complaint within 3 months and summon top officials for questioning.

Read more here – https://economictimes.indiatimes.com/epaper/delhicapital/2024/nov/19/et-comp/enforcement-directorate-uncovers-direct-links-between-amazon-flipkart-and-sellers/articleshow/115428846.cms 

Need a quick refresher on FDI rules in e-commerce? We have created a handy cheat sheet to break it down here.

FDI in E-Commerce – Guidelines

B2B E-commerce activities (not retail)

• 100% FDI permitted under the automatic route

Market place model of e-commerce

• 100% FDI permitted under the automatic route

E-commerce

Means buying and selling of goods and services, including digital products, over digital & electronic networks.

‘Market place model of e-commerce’

Means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

‘Inventory based model of e-commerce’

Means an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly.

Permissible Transactions

• Marketplace e-commerce entities are permitted to enter into B2B transactions with registered sellers.
• E-commerce marketplace entities may provide support services to sellers (e.g., logistics, warehousing, marketing).

Seller Responsibility

• Seller details (name, address, contact) must be displayed for goods/services sold online.
• Delivery and customer satisfaction post-sale are the seller’s responsibility.
• Warranty/guarantee of goods/services rests solely with the seller.

Ownership and Control

• Marketplace e-commerce entities must not exercise ownership over the inventory.
• Control is deemed if over 25% of a vendor’s purchases are from the marketplace entity or its group companies.
• Entities with equity participation or inventory control by a marketplace entity cannot sell on that entity’s platform.

Fair Competition

• Marketplace entities cannot influence pricing of goods/services and must ensure fair competition.
• Services like fulfillment, logistics, and marketing must be provided fairly and at arm’s length.
• Cashbacks by group companies must be fair and non-discriminatory.
• Sellers cannot be forced to sell products exclusively on any platform.

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Restrictions

• FDI is not allowed in inventory-based e-commerce models.

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