Regulators investigating Amazon over direct sales to consumers in India

Indian regulators are investigating whether Amazon.com Inc might have worked around restrictions imposed on foreign investors by selling directly to domestic consumers, The Wall Street Journal yesterday reported, citing unidentified sources.

The Enforcement Directorate of the ministry of finance is investigating whether the local subsidiary of the retailer might have made direct sales to customers, but made it look as if the sales had been made by other companies, according to the report which quoted two people familiar with the matter.

Foreign firms are barred from owning majority stake in retail companies selling more than one brand. The Journal said Amazon.com was allowed to operate as it operated more like a marketplace rather than a retailer.

The Seattle-based e-commerce company operates in the country by charging third-party suppliers to use its website to sell around 17 million different products, from books to electronics. India is of strategic import for the retailer as it tries to boost growth and profits.
According to the company, it planned to invest $2 billion more in India business, where it had cut prices, stepped up marketing and accelerated warehouse construction to try and take on local competitors.

Another source said Indian investigators were also examining whether Amazon exerted control over the prices of products sold on its web site.

Meanwhile, ET NOW reported citing sources that the ED has sought information regarding Amazon's business model and that the directorate was studying the e-tailer's model of online marketplace in India. No notice had been sent to the company so far, with the ED still trying to establish if there had been violations.

However, the report said, Amazon was not alone, and the investigations formed part of a wider probe that the ED had launched into a dozen e-commerce companies in India. It started with the Reserve Bank of India sending ED a reference to probe the business models of a few e-commerce companies, which led ED to investigate other companies using similar business models.

According to ET NOW, the ED found Flipkart in breach of FEMA provisions and might impose a hefty penalty to the tune of Rs1,000 crore.

Under the provisions of FEMA, ED can slap a penalty up to three times of the contravention or foreign investment received in a case. According to officials, in case of a show-cause notice the company is given the opportunity to contest before the Directorate.