China’s Xiaomi has communicated its apprehensions to New Delhi regarding the reluctance of smartphone component suppliers to establish operations in India amidst heightened scrutiny of Chinese companies by the government, as per a letter and a source with direct knowledge of the situation.
India Urged to Consider Incentives and Tariff Reductions:
In a letter dated Feb. 6, Xiaomi, holding the largest share (18%) in India’s smartphone market, highlighted this concern and urged India to contemplate offering manufacturing incentives and reducing import tariffs for specific smartphone components.
The heightened scrutiny of Chinese businesses in India, particularly in the aftermath of the 2020 border clash, has significantly impacted the investment plans of major Chinese corporations, including Xiaomi.
The letter underscores Chinese companies’ challenges in India, especially in the smartphone sector, where crucial components often originate from Chinese suppliers.
Xiaomi Advocates Confidence-Building Measures:
Muralikrishnan B., President of Xiaomi India, emphasized the necessity for “confidence-building” measures to incentivize component suppliers to establish local operations.
The letter highlighted concerns regarding compliance, visa issues, and other unspecified factors that hinder component suppliers from setting up operations in India.
India’s Response: Scrutiny, Allegations, and Regulatory Measures:
India’s response to Chinese companies’ operations has been robust. Accusations of breaching visa rules and alleged illegal fund transfers have been directed at companies like Vivo Communication Technology and Xiaomi.
Moreover, India’s regulatory actions have included freezing Xiaomi’s assets and banning over 300 Chinese apps, which indicates the stringent measures imposed on Chinese entities.
Xiaomi’s letter also advocated for further reductions in India’s import tariffs, particularly on sub-components used in batteries, USB cables, and phone covers.
Such reductions, Xiaomi argued, would enhance India’s manufacturing competitiveness by reducing costs. However, Xiaomi stressed that significant incentives would be necessary to attract component manufacturers to establish operations in India.
Prospects for Eased Scrutiny Based on Border Situation:
In January, Rajesh Kumar Singh, India’s top industrial policy bureaucrat, hinted at the possibility of easing scrutiny of Chinese investments if the border situation between the two countries remains peaceful.