India's financial crime bureau will call in executives from Flipkart and Amazon as part of an inquiry into possible foreign investment law violations, days after raiding some of the companies' vendors, according to a senior government source.

The proposed action indicates more regulatory scrutiny of Walmart-owned Flipkart and Amazon, whose sales are quickly increasing in India's $70 billion e-commerce business. According to reports, an Indian antitrust probe determined that the two corporations violated the law by favoring certain merchants.

Amazon and Flipkart have maintained that they follow Indian regulations, but the Enforcement Directorate has spent years examining allegations that the businesses control inventory through handpicked vendors.

Foreign e-commerce players in India are prohibited by law from maintaining inventory of goods that can be sold on their website, forcing them to operate solely as a marketplace.

Following the Directorate's raids on Amazon and Flipkart vendors last week, the federal agency now plans to call corporate leaders and is evaluating papers obtained from the sellers during the operation, according to a senior government source directly involved in the investigation on Monday.

The searches lasted until Saturday and found evidence of foreign investment law infractions, according to a government source who declined to be identified because the raids' specifics have not been made public.

The Directorate will also examine business data from vendors and their interactions with e-commerce companies over the last five years, the official said.

End-to-end Control

According to Datum Intelligence, Flipkart had a 32% market share in Indian e-commerce last year, while Amazon had a 24% share, accounting for approximately 8% of the $834 billion retail sector.

The recent raids were prompted by Amazon and Flipkart antitrust inquiry conclusions, which stated that the platforms "had end-to-end control over the inventory and the sellers are just name lending enterprises."

Two other sources with intimate knowledge of the situation say at least two Amazon vendors and four Flipkart sellers were raided last week.

A Reuters investigation in 2021, based on internal Amazon documents, revealed that the corporation has extensive control over the inventory of some of the largest sellers, despite Indian regulations prohibiting foreign players from doing so.

According to one of the individuals, Appario, previously Amazon's largest Indian vendor, was among those seized last week by investigators who examined financial records and questioned executives about their connections with the US-based e-commerce giant.

Unlike other vendors, Appario was referred to internally as a "special" merchant and enjoyed cheaper fees as well as access to Amazon worldwide retail systems used for inventory management, according to a 2021 Reuters investigation.

Online shopping and delivery platforms are under increasing scrutiny in India due to allegations of unfair business practices that harm smaller firms. The antitrust body determined that meal delivery firms Zomato and Swiggy violated laws by favoring certain businesses on their apps.