xiaomi: Explained: Why Xiaomi is in ‘trouble’ with the Indian government

Over the past decade or so, Xiaomi has gone from being one of many Chinese companies trying to gain a foothold in India to being one of the biggest brands in the country. Xiaomi leads the domestic smartphone market while its other devices – TVs, fitness bands – also remain widely popular. However, in the last few months, trouble has arisen between Xiaomi and the Indian government, leading to the Executive Committee (ED) seize company assets. Here we explain what the problem is:
What prompted the Enforcement Board to take action against Xiaomi?
Xiaomi is being accused of breaking foreign exchange laws in India. In a tweet posted from ED’s official Twitter account, the agency revealed that “ED has seized Rs 5,551.27 of M/s Xiaomi Technology India Private Limited located in a bank account under the provisions of the Act foreign exchange management in 1999 in relation to the company’s illegal offshore remittances. ”
The ED revealed that it has been investigating Xiaomi since December 2021 and discovered that the company had transferred funds – in the form of royalty payments – to three entities based abroad. ED in a statement, according to Reuters, said that “Such huge sums in the name of royalties were paid in accordance with the instructions of the institutions of their Chinese parent group,” it said. Furthermore, it also revealed that two other “unrelated entities” based in the US also received the funds for the “ultimate benefit of the entities belonging to the Xiaomi group”. The ED said that Xiaomi had “provided false information to banks while transferring money abroad.”
According to reports, the government has been pushing Chinese companies to use local companies rather than their counterparts back home. The Indian government has tightened regulations – largely due to cross-border tensions with China – on investments from abroad.
What is Xiaomi’s response?
In an official statement released, Xiaomi denied providing any services from the three units based abroad. “These royalties Xiaomi India made for the licensed IP and technologies used in our Indian edition products. The fact that Xiaomi India makes such royalty payments is a legitimate commercial arrangement. The company added that it is committed to working closely with government agencies to “clear up any misunderstandings”.
The Income Tax Department in December 2022 hit the offices of Xiaomi – along with Oppo -. A report by the Economic Times stated that the raids were conducted based on “actionable intelligence input” about “several breaches” by Xiaomi and others.

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