India’s Serious Fraud Investigation Office has recommended that Xiaomi face a detailed investigation into alleged irregularities in its business model and its compliance with foreign investment law. The recommendation, made in a government memorandum reviewed by Reuters, could intensify scrutiny of the Chinese smartphone maker in what was once its most important overseas market.
The Xiaomi India probe recommendation centres on the movement of funds and on whether the company sought the mandatory investment approvals that India requires after tightening its scrutiny of Chinese investments following the deadly border clashes between the two countries in 2020. A person familiar with the matter said the government is examining the memorandum, which was drafted in May and reviewed by Reuters.
Xiaomi was once India’s top-selling smartphone brand, but its market share has dwindled amid intense competition from Apple and Samsung. The company is also battling several tax demands and royalty payment disputes in the country.
What the Xiaomi India probe memo says
The memorandum says the most important part of the proposed investigation should be an examination of the beneficial ownership of foreign investors and group entities. “The investigation should verify whether any direct or indirect beneficial ownership, control, or change in control was disclosed and approved as required,” the document says. “It is recommended that a detailed SFIO investigation be undertaken.”
The document reviewed by Reuters frames the probe as a compliance exercise with two main threads: the flow of funds through the company’s India business, and whether approvals were obtained where the rules demanded them. The SFIO is the corporate affairs ministry’s white-collar crime investigation arm, and a Xiaomi India probe recommendation carries weight even before a formal investigation begins.
Foreign investment rules at the centre of the Xiaomi India probe
The rules at issue date back to India’s response to the 2020 border clashes with China, after which New Delhi tightened scrutiny of Chinese investments. Under the current regime, investment from countries sharing a land border with India needs prior government approval in many cases, and changes in beneficial ownership and control can trigger approval requirements.
According to the memorandum reviewed by Reuters, the proposed Xiaomi India probe should check whether any direct or indirect beneficial ownership, control, or change in control in the company’s Indian operations was disclosed and approved as the rules require. The document does not spell out specific transactions, but it makes the ownership question the centre of the exercise.
The Xiaomi India probe would run that examination of fund movements alongside the ownership check. The two threads overlap: if ownership changed hands without the required approvals, the associated flows of money would not meet the rules.
Xiaomi’s response
A Xiaomi spokesperson told Reuters that the company had not received any notice or communication from the SFIO. “We accord paramount importance to the laws of the land and comply with them fully at all times,” the spokesperson said.
The corporate affairs ministry, which is the SFIO’s parent, and the SFIO itself did not respond to Reuters’ queries. The government is still examining the Xiaomi India probe memorandum, and no formal investigation has been announced.
A long list of troubles for Xiaomi in India
The Xiaomi India probe recommendation is only the latest in a string of setbacks for Xiaomi in India. The company built its early growth in the country on aggressive pricing and online sales, climbing to the top of the smartphone market. But competition from Apple at the premium end and Samsung across price bands has steadily eaten into its share.
Along the way, the company has fought several tax demands and disputes over royalty payments. Each episode has added to the sense that operating in India has become harder for Chinese smartphone makers, even as the market remains one of the largest in the world.
The Reuters report said the revelation came ahead of Chinese President Xi Jinping’s expected visit to India for a BRICS summit, placing the corporate dispute against a wider diplomatic backdrop. For now, the Xiaomi India probe is a recommendation awaiting a decision, and the file remains with the government, which is examining the memorandum and its recommendation that a detailed SFIO investigation be undertaken.