Xiaomi India faces fresh scrutiny as SFIO seeks detailed probe into investment, e-commerce practices

Chinese smartphone maker Xiaomi faces fresh regulatory pressure in India after the Serious Fraud Investigation Office (SFIO) recommended a detailed investigation into its Indian operations over alleged irregularities in its business model and possible non-compliance with foreign investment rules. The recommendation, contained in a government memorandum drafted in May, covers Xiaomi Technology India Private Limited and related entities and is awaiting approval from the Ministry of Corporate Affairs.

The proposed investigation would examine the movement of funds and whether Xiaomi obtained mandatory government approvals for investments after India tightened scrutiny of Chinese capital in 2020. A key focus would be the beneficial ownership of foreign investors and group entities, including whether any direct or indirect ownership, control or change in control was properly disclosed and approved under applicable rules.

21-point probe framework

The SFIO has outlined a 21-point framework covering the scope, methodology and proposed course of the investigation. It has recommended scrutiny of Xiaomi’s financial statements and auditors’ reports for possible material misstatements, while statements of current and former directors, chief financial officers and compliance officers could also be recorded. Company executives could be summoned if required.

The recommendation is based on complaints and inputs received through the Commerce Ministry. The SFIO has also proposed coordination with other government agencies where potential violations overlap. However, the recommendation does not itself mean that a formal investigation has begun. The Ministry of Corporate Affairs can approve the proposal, decline to proceed or refer aspects of the matter to other departments.

E-commerce practices under lens

Xiaomi’s online sales arrangements could form another major part of the scrutiny. Investigators may examine whether the company exercised effective control over Indian sellers or launch partners while presenting the relationships as independent, arm’s-length arrangements. Preferential or exclusive launches of Xiaomi products on selected e-commerce platforms could also be examined to determine whether they undermined India’s foreign direct investment rules governing online marketplaces.

The issue has previously attracted competition scrutiny. In 2024, India’s antitrust regulator alleged that Xiaomi was among smartphone companies involved in exclusive online product launches with major e-commerce platforms, raising questions over competition rules. Small offline retailers have long argued that preferential online arrangements put traditional sellers at a disadvantage.

Xiaomi denies wrongdoing

Xiaomi said it had not received any notice or communication from the SFIO and maintained that it gives paramount importance to Indian laws and complies with them. The company is already contesting other regulatory actions in India, including the freezing of Rs 5,551 crore of its assets since 2022 over alleged illegal remittances, allegations it has denied.

The fresh scrutiny comes as Xiaomi’s position in the Indian smartphone market has weakened. Its market share has fallen to around 13 per cent from 19 per cent earlier, pushing it to fourth place, while its India revenue in 2025 stood at $2.52 billion, about 40 per cent below the level recorded three years earlier. A formal SFIO investigation, if approved, could add another significant regulatory challenge for the company in one of the world’s largest smartphone markets.