In the past decade or so, Xiaomi One of the many Chinese companies trying to establish a foothold in India has grown into one of the biggest brands in the country. Xiaomi is the market leader in smartphones in the country while its other devices – TVs, fitness bands – are also widely popular. However, over the past few months, problems have been brewing between Xiaomi and the Indian government, leading to the Indian Enforcement Directorate (ed) confiscation of the property of the company. Here we explain what the matter is:
What action did the Enforcement Directorate take against Xiaomi?
Xiaomi is being accused of violating foreign exchange laws in India. In a tweet posted from the ED’s official Twitter account, the agency disclosed that “ED has seized Rs 5551.27 crore of M/s Xiaomi Technology India Pvt Ltd lying in bank accounts under the provisions of the Foreign Exchange Management Act, 1999. Illegal outward remittances made by
The ED revealed that it had been investigating Xiaomi since December 2021 and found that the company had remitted funds – under the guise of royalty payments – to three foreign-based entities. “Such a huge amount in the name of royalty was sent on the instructions of their Chinese parent group entities,” it said in a statement, according to Reuters. In addition, it was also revealed that two other US-based “unrelated entities” also received funds that were for the “ultimate benefit of Xiaomi Group entities”. The ED said that Xiaomi “provided misleading information to banks while sending money abroad.”
According to reports, the government was pushing Chinese companies to use local companies and not their allies from home. The Indian government is tightening rules – mainly due to cross-border tensions with China – on investments coming from abroad.
What has been the reaction of Xiaomi?
In an official statement issued, Xiaomi denied availing any services from the three foreign-based entities. “These royalty payments that Xiaomi India Made in-licensed technologies and our Indian version were for the IP used in the products. It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. The company further said that it is committed to working closely with government officials to “clarify any misconceptions”.
In December 2022, the Income Tax Department raided the offices of Oppo as well as Xiaomi. A report in The Economic Times said the raids were conducted based on “actionable intelligence input” on “multiple breaches” by Xiaomi and others.