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ED investigating Amazon for possible FDI violations

Amazon LogoOnline retailer Amazon India has come under Enforcement Directorate (ED) scanner for possibly violating the FDI rules of the country, reports Economic Times. The ED suspects that Amazon has been selling directly to customers under the radar, by making it appear like genuine sales on behalf of vendors. It also suspects the online retailer of manipulating and controlling prices on its website.

Currently, India does not allow FDI in multi-brand retail, instead Amazon works by acting as a marketplace for vendors to sell goods, then charges the third-party suppliers commissions based on products sold. The accusations of direct selling and price fixing would imply Amazon acting as a retailer, rather than just a marketplace, violating India’s FDI policy. The ED is still trying to establish if there has indeed been a violation, meanwhile Amazon itself has refused to comment on the development.

Previously the Reserve Bank of India had initiated the probe into business models of a few e-commerce companies by sending a reference probe to ED, which then began investigating companies with similar business models. As per FEMA norms, a penalty up to three times of the foreign investment or contravention received, can be imposed by the ED. Ecommerce venture Flipkart had a similar run in with the ED when it received a notice alleging violation of Rs 1,400 crore under FEMA, from the authority in May.

Amazon has also been accused by the commercial taxes department of Karnataka of making a back-door entry in India rather than opening its own subsidiaries. The company however denied these claims stating that it was in compliance of all FDI rules. Interestingly, Amazon has been involved in squabbles with various organizations previously including for tax avoidance in the UK, working conditions in warehouses in the USA, e-book pricing with Hachette and opposition to trade unions in both US and UK among others.

Amazon in India: Amazon has been looking to rapidly expand its footprint in India and, in July, had announced a $2 billion investment in the country to that end. The company also appointed Abhijeet Muzumdar to look after mergers and acquisitions in Southeast Asia and India, just last month. The platform had also announced its intentions to open five new fulfillment centres in the country to take the total number of fulfillment centres to seven. It had also launched a Gift Cards Store with gift cards from over 70 brands last month.

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