It seems to be a trend lately that whether people or companies, our system always try to nail down the one who is growing very fast. According to a recent news clipping from Hindustan Times, Flipkart has again came under the Enforcement directorate scanner for alleged violation of country’s FDI policies.
The investigation has began and the company may get issued a show-cause notice for breaching foreign investment rules. As per the current guidelines, foreign investment in multichannel retail is not allowed. In case a company is found breaching the rules, the ministry can put a fine 3 times the actual investment done.
Flipkart began its journey in 2007 [Flipkart Timeline] and soon took a high leap of growth. It sold its front end retail operations, WS Retail, to a group of investors led by Rajiv Kuchhal long back and has adopted the marketplace model. The company not only attracted large sums of investments but also recently became first Indian ecommerce company to cross USD 1 billion GMV.
However, the government officials doesn’t seem to agree with the tremendous growth a company can take in a short time span. They continue probing allegations and asking for relevant proofs. Earlier in 2012, various publications reported a government raid on Flipkart’s Bangalore office for the similar cause. However, the company always denied these allegations.
“The news about the raids on our warehouses is incorrect. Flipkart warehouses were not raided by government/ED officials,“- statement by Flipkart in response to iamWire query.
But why only Flipkart? There are other ecommerce companies too that have raised a significant amount of foreign investment and have similar business models to Flipkart. Here is a chart:
Source: Business World
The ministry claims to have full evidence against Flipkart, per a Medianama report. But what about other companies. Are they being audited as well?
We tried reaching to Accel partner officials, to know there take. However, the response is being denied saying that, they have no idea on this. Also, we have written to Flipkart founders, but the response is still awaited.
If Flipkart really proves to be guilty, how will it affect its operations? Will it be able to sustain the imposed fine or we will have another company in the list of shut downs? Also, how this will affect the entire investment scenario in the Indian ecommerce space?
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