India's Serious Fraud Investigation Office (SFIO) has recommended that Xiaomi be investigated for alleged irregularities in its business model and compliance with foreign investment law, according to a government document reviewed by Reuters. The recommendation calls for a detailed SFIO investigation to examine the smartphone maker's business practices in India. As reported by Reuters, the memorandum was drafted in May and is currently under government examination. The revelation comes ahead of Chinese President Xi Jinping's expected visit to attend a BRICS summit in India at the weekend. The SFIO is India's main agency for investigating corporate fraud and has powers to arrest and prosecute offenders. The proposed investigation covers Xiaomi Technology India Private Limited and its related entities, with the recommendation still awaiting approval from the Ministry of Corporate Affairs, which is the SFIO's parent ministry. A person familiar with the matter confirmed to Reuters that the government is examining the memorandum.
China's Xiaomi was once India's top-selling smartphone brand but has seen its market share decline to fourth place with 13% share, down from 19% it previously commanded, according to Counterpoint Research. The company's India revenue in 2025 stood at ₹20,800 crore ($2.52 billion), representing a 40% decline from three years ago. The SFIO proposal recommends examining whether Xiaomi had 'de facto control' over Indian sellers or launch partners while representing those arrangements as operating at arm's length. Xiaomi has also been battling several tax demands and royalty payment disputes, adding to its challenges in the Indian market. The company has been unable to overturn the freeze of ₹5,551 crore in its Indian bank assets by the financial crime-fighting agency since 2022, which relates to alleged illegal remittances that Xiaomi has denied. Brands like Xiaomi have become hugely popular in India through online sales of their products on Amazon and Walmart's Flipkart, but small brick-and-mortar retailers have repeatedly accused the two e-commerce companies of entering into exclusive pacts with sellers, which is prohibited under India's Foreign Direct Investment laws.
The investigation will examine the movement of funds and whether Xiaomi obtained the mandatory approvals for investments in India after the government tightened scrutiny of Chinese investments in 2020. According to Reuters, the memorandum emphasizes that the most important part should be examination of beneficial ownership of foreign investors and group entities. The stricter foreign investment rules introduced in 2020 required prior government approval for any investment made by a Chinese entity in India, which businesses, including Xiaomi, had said caused delays. Earlier this year, India's government relaxed some of these restrictions as New Delhi and Beijing have been working on maintaining peace at the border. The SFIO has also proposed examining the ownership and control of Xiaomi's foreign investors and group companies, checking whether any direct or indirect ownership, control or changes in control were properly disclosed and approved. The SFIO investigation proposal was based on complaints and inputs received via the government's commerce ministry, which also did not respond to Reuters queries.
A Xiaomi spokesperson told Reuters that the company has not received any notice or communication from the SFIO, stating that it accords paramount importance to Indian laws and complies with them fully. The company said it places "paramount importance" on Indian laws and complies with them fully at all times. The SFIO investigation proposal calls for coordination with other government agencies and includes a 21-point investigation framework with scope, methodology and plan of action. The memorandum sets out a comprehensive framework covering the scope, methodology and proposed course of the investigation, allowing for company executives to be summoned if required. The SFIO has proposed examining Xiaomi's financial statements and auditor reports filed with the government for possible material misstatements, with statements from current and former directors, chief financial officers and compliance officers also recorded. There is no fixed timeline for such decisions and the process can take months, according to Meghav Gupta, founder of law firm Consecro Law. A spokesperson for SFIO's parent, the Ministry of Corporate Affairs, and the SFIO did not respond to queries when approached by Reuters.
The investigation will specifically cover whether preferential and exclusive launches of Xiaomi products on selected e-commerce platforms defeated the intent of FDI policy applicable to e-commerce companies. Small offline retailers have accused the two e-commerce platforms of entering into exclusive arrangements with sellers, which is prohibited under India's Foreign Direct Investment laws, saying it hurts the smaller offline businesses. In 2024, India's antitrust agency alleged that Xiaomi was among smartphone companies which colluded with e-commerce companies to exclusively launch products online, breaching competition laws. Amazon and Flipkart deny these allegations, while SFIO calls for coordination with other government departments to correlate overlapping violations. The SFIO investigation proposal calls for further scrutiny of Xiaomi's arrangements with Indian sellers and launch partners, examining whether the company had effective control over these sellers or partners while presenting the relationships as being between independent entities. The inquiry should specifically cover whether preferential and exclusive launches of Xiaomi products on selected e-commerce platforms defeated the intent of the FDI policy applicable to e-commerce companies.
