India’s Fraud Agency Recommends Detailed Probe into Xiaomi

India’s Serious Fraud Investigation Office has recommended a full probe into Xiaomi over alleged foreign investment breaches and fund transfers. The inquiry intensifies pressure on the Chinese phone maker.

The Beijing-based company has seen its local market share fall from 19 per cent to 13 per cent. Its India revenue dropped 40 per cent over three years to $2.52 billion in 2025.

A draft memorandum prepared by the SFIO in May recommends examining fund movements. It asks investigators to verify whether Xiaomi Technology India Private Limited and its affiliated entities secured mandatory government approvals. The document also calls for a review of foreign investor and parent group beneficial ownership to confirm whether changes in corporate control were declared.

Investigators also proposed testing financial statements and auditor reports filed with the Indian government for material misstatement. They seek authority to record formal statements from current and former directors, chief financial officers, and compliance leads under a 21-point investigative framework.

The Squeeze on Online Distribution

This proposed probe places Xiaomi’s core sales model under fresh scrutiny. The brand built its early dominance in India on flash sales hosted on Amazon and Walmart-owned Flipkart. Offline shopkeepers have long argued that those arrangements violate foreign direct investment rules by giving preferential terms to selected online merchants.

Under the proposal, the SFIO instructs investigators to determine whether Xiaomi exercised de facto control over Indian retail sellers and launch partners while presenting them as independent businesses. Any formal finding against these distribution structures would force hardware vendors across the region to rework online retail partnerships, raising distribution costs and limiting promotional pricing flexibility.

Rivals Gain Ground as Legal Pressure Mounts

Regulatory scrutiny is accelerating a commercial shift across India’s handset market. Samsung and Apple have captured premium and mid-tier demand as legal battles occupy management attention. Xiaomi has now dropped to fourth place in national shipments.

Suppliers and channel partners face uncertainty around contract terms and inventory financing. For cross-border consumer brands operating in India, the agency’s focus on ultimate beneficial ownership signals that holding company layers and offshore licensing pacts face direct exposure.

Unresolved Assets and Stalled Clearances

Tensions between New Delhi and Chinese consumer brands have built since 2020 border clashes prompted tighter screening of Chinese capital. Xiaomi has already failed to overturn a separate 55.51 billion rupee ($584 million) bank asset freeze imposed by India’s financial crime agency in 2022 over contested royalty transfers.

The corporate affairs ministry must now decide whether to authorise the probe, reject it, or refer specific points to other enforcement agencies. The ministerial review carries no statutory deadline, leaving the 21-point inquiry pending as officials assess the file.