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Govt of India probing FlipKart for alleged violations of FDI norms

The Government of India has said that it has referred Bharti
Walmart and Flipkart Online Service’s alleged violation of Foreign Direct Investment (FDI) regulations to
the Enforcement Directorate. The Hindu BusilessLine reports that Flipkart.com had allegedly

The Government of India has said that it has referred Bharti
Walmart and Flipkart Online Service’s alleged violation of Foreign Direct Investment (FDI) regulations to
the Enforcement Directorate. The Hindu BusilessLine reports that Flipkart.com had allegedly
circumvented FDI rules by creating complex structures.

The report states that FlipKart had formed a structure over
its backend firm FlipKart Online Services (FOS), which held the FlipKart brand
till it was transferred to FlipKart India, another B2B entity, in late 2011.
Both entities licensed the brand to B2C firm WS Retail. According to Department
of Industrial Policy and Promotion, “Ecommerce in both multi- and single-brand
retail is not permissible for companies with FDI.”

“Violation of FDI regulation is covered by the penal
provisions of the Foreign Exchange Management Act (FEMA). The RBI has informed
the matter related to Bharti Walmart/Cedar Support Services and FlipKart Online
Services to Directorate of Enforcement for further investigation,” Anand
Sharma, Commerce and Industry said in Lok Sabha. Retail major Walmart had
pumped in Rs 455.8 crore into a subsidiary of Bharti Ventures in 2010 via its
Mauritius arm.

Meanwhile, Sharma said that FDI equity inflows during
financial year 2011-12 had increased significantly over the previous year. It
stood at $35,120 million in 2011-12.

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