India seems to be avenging the disruption at the Foxconn assembly facility in Tamil Nadu’s Sriperumbudur. China had celebrated the moment as some sort of an achievement. An intelligence note alleged “Chinese aid to the left-leaning workforce inside Foxconn” as the reason for the labour unrest in the Foxconn assembly plant.
So, India knew that China was possibly behind the unrest at Foxconn. India simply could not let China go scot-free and so it decided that it will target Xiaomi.
Ministry of Finance alleges tax evasion by Xiaomi India
The Ministry of Finance has alleged that Xiaomi India customs duty of Rs. 653 crore “for the period 01.04.2017 to 30.06.2020.”
In its latest statement, the Union Ministry of Finance has said, “Based upon an intelligence that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, an investigation was initiated by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers.”
The Ministry of Finance has also referred to the “recovery of incriminating documents indicating that Xiaomi India was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation.”
It added, “During the investigations, it further emerged that the “royalty and licence fee” paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., China (related party of Xiaomi India) were not being added in the transaction value of the goods imported by Xiaomi India and its contract manufacturers.”
After completion of the DRI investigation, “three show cause notices have been issued” to Xiaomi India.
Why Xiaomi?
You might be wondering why the Modi government has focused its energies on Xiaomi India?
Well, Xiaomi is the main power that leads to Chinese domination in the Indian smartphones market. It is engaged in the sale of MI brand mobile phones in India and you know how popular they are. These budget smartphones are particularly popular amongst India’s middle and lower-middle classes.
Redmi, a subsidiary company owned by Xiaomi, too is extremely popular in India.
So, if Foxconn assembling plant disruption hurts India, any troubles in Xiaomi’s operations in India would leave China ravaged.
Xiaomi central to China’s smartphones domination in India
China dominates India’s huge smartphones market that witnessed a sale of over 150 million mobile phones in 2020 alone. According to Counterpoint Research, smartphone shipments were expected to reach 173 million in India in 2021.
In the July-September 2020 quarter, Chinese brands captured 74 percent of the Indian smartphone market. Xiaomi alone accounted for 22 percent of the shipment share.
India’s smartphones market just keeps getting bigger because of its young population demographics, increasing incomes and a craze for using smartphones.
If Xiaomi and other Chinese smartphone makers can manage to even retain their present share in the Indian market, they can gain big out of the growing market. They are already earning a lot out of the gigantic smartphones market.
With cost-cutting tactics and cheaper prices, Chinese smartphone makers have managed to keep a hold on the Indian market till now. But why should India let China earn out of its smartphone users, if China can dare to disrupt and celebrate industrial disruption in India? And so, India seems to be hitting China where it hurts the most.