India Recommends Formal Investigation Into Chinese Tech Giant Xiaomi
India's SFIO has recommended probing tech giant Xiaomi over foreign investment and business model irregularities, compounding the firm's ongoing regulatory and market challenges.
India's Serious Fraud Investigation Office (SFIO) has recommended launching a formal probe into Chinese technology giant Xiaomi over suspected irregularities in its business model and compliance with foreign investment laws. The recommendation, contained in an internal document from May that was revealed by Reuters, comes at a time of cautious diplomatic thaw between New Delhi and Beijing ahead of Chinese President Xi Jinping's expected visit to India for the BRICS summit this weekend.
Scope of the Proposed Investigation
The document advises scrutinizing the company's capital movements, ultimate beneficial ownership, and ties with foreign investors to determine whether Xiaomi bypassed mandatory prior government approval requirements. Such approvals became compulsory for investments from China following deadly border clashes in 2020. The SFIO has outlined a 21-point action plan requiring the review of financial and auditor reports for potential material misstatements, alongside gathering testimonies and summoning current and former executives, chief financial officers, and compliance officers.
The proposed investigation also entails a deep dive into exclusive launch agreements that Xiaomi signed with e-commerce platforms such as Amazon and Walmart-owned Flipkart. Authorities suspect these activities violated foreign direct investment (FDI) policies and disadvantaged local small businesses.
Growing Pressures and Legal Battles
The looming investigation deals another blow to Xiaomi, which previously led India's smartphone market but has since seen its market share plunge from 19% down to 13%, relegating it to fourth place amid aggressive competition from Apple and Samsung. Furthermore, Xiaomi remains embroiled in a prolonged legal battle against a 2022 decision by Indian authorities to freeze approximately 5.55 billion rupees ($584 million) of the company's local bank assets over alleged illegal remittances—charges that the firm consistently denies.
In response to Reuters, a Xiaomi spokesperson stated that the company has not received any official notice or communication from the SFIO, emphasizing that it places utmost importance on local laws and strictly complies with them at all times. The proposal to establish an investigative team now awaits approval from the Ministry of Corporate Affairs, a process that could take several months, during which the ministry may approve the action, reject it, or refer the matter to other government agencies.
