FDI ‘violations’: RBI, ED asked to take ‘necessary action’ on allegations against Amazon, Flipkart and Walmart

For their part, the e-commerce players have denied the charges and maintained that they abide by the relevant rules.

The commerce and industry ministry has asked the Reserve Bank of India (RBI) and the Enforcement Directorate (ED) to take “necessary action” on allegations made by a key traders’ body against Amazon, Flipkart and Walmart relating to the violations of foreign direct investment (FDI) and other relevant rules.

In a letter to RBI and ED on December 22, Mira Sethi, a deputy director with the department for promotion of industry and internal trade (DPIIT), said: “The undersigned is directed to forward herewith the following representations received from the Confederation of All India Traders (CAIT) wherein it has been, inter-alia, alleged that e-commerce companies are in violation of Fema rules/FDI policy by adopting the illegal structuring/investments and practices.” “The ED and the RBI are, hereby, requested to take necessary action,” she wrote.

In its representations to the government, CAIT has objected to the recent Rs 1,500-crore deal between Flipkart Group and Aditya Birla Fashion & Retail (ABFRL) on the ground that it contravenes the FDI policy. This is because Flipkart Group, which operates e-commerce platforms such as Flipkart and Myntra, has a “clear intent to make ABFRL a preferred seller” on their marketplace platforms, it alleged. Also, the FDI policy prohibits a foreign company to venture in any forms of multi brand retail trading (MBRT) by having any equity interests in the sellers on its marketplace platform, or by controlling, directly or indirectly, their inventory through side agreements, or under the garb of B2B e-commerce, it said. ABFRL recently announced that Flipkart Group will pick up a 7.8% stake in it.

The traders’ body has also alleged a misuse of the FDI policy in manufacturing by e-commerce players for multi-brand retailing of grocery. It has accused both Amazon and Walmart-backed Flipkart of exploiting loopholes in rules and frequently violating FDI policies relating to e-commerce by clandestinely offering discounts through sellers on their platforms, among others.

For their part, the e-commerce players have denied the charges and maintained that they abide by the relevant rules.

At present, while the DPIIT formulates and notifies FDI policies, any violation of such rules is dealt under the penal provisions of the Foreign Exchange Management Act (Fema). This Act is administered by RBI, and ED is its enforcement authority.

An executive with a major e-commerce firm said the company has not received any formal notification from the industry ministry, ED or RBI. The ministry is understood to have forwarded representations to the ED and RBI to only “form an opinion on the matter and suggest if it merits an investigation”. “This directive is not indicative of launching a probe against the companies,” the executive said.

Commenting on the allegations, a Flipkart spokesperson asserted: “The Flipkart group is fully compliant with all applicable laws and FDI regulations in the country…Through our pan-India operations and deep investments in supply chain, physical & digital infrastructure, we create lakhs of direct and indirect employment opportunities and nurture entrepreneurs across the country.”

Nirupama Soundararajan, head of research at Pahle India Foundation, said the directive is “self-explanatory” in that the DPIIT has requested that the “authorities concerned examine the matter at hand to assess if indeed any violations have occurred”. “Any formal investigation can and should ensue only if there is evidence of such violations. If not, this matter should be laid to rest,” she added.