India’s fraud office recommends a detailed investigation into Xiaomi’s local business

India’s Serious Fraud Investigation Office has recommended a detailed investigation into Xiaomi’s business in the country, according to an internal document examining how money moved through the company’s Indian operations and whether it obtained the approvals required for Chinese investment.

The document was drafted in May and reviewed by Reuters, which reported its contents on Wednesday. But the recommendation does not mean the SFIO has found that Xiaomi did anything wrong, and no investigation has been announced yet.

The document identifies four areas for examination: the movement of funds through Xiaomi’s Indian entities; whether the company obtained the approvals required for investment from countries that share a land border with India.

The beneficial ownership of its foreign investors and group companies; and whether it complied with India’s foreign direct investment rules more broadly.

The last point includes whether Xiaomi exercised de facto control over Indian sellers on e-commerce platforms while presenting those relationships as independent.

Foreign-owned marketplaces in India are not allowed to control the vendors that sell through them, an issue that has previously involved Amazon and Flipkart.

The rules governing investment from neighbouring countries are likely to be particularly important.

Since April 2020, investments from countries that share a land border with India, in practice mainly China, have required government approval rather than going through the automatic route available to other foreign investors. India introduced the requirement after the clashes in the Galwan Valley.

For Xiaomi, the question could be whether transactions or transfers between its group companies after the rules came into force required approval, even though the company had established its Indian business before the restrictions existed.

Xiaomi says it has not been contacted about the matter. The company told Reuters that it had not received any notice or communication from the SFIO and that it complies fully with Indian law. The SFIO and the Ministry of Corporate Affairs did not respond to Reuters’ questions.

This is not Xiaomi’s first dispute with an Indian regulator. In April 2022, the Enforcement Directorate seized about ₹5,551 crore from Xiaomi’s Indian bank accounts under foreign exchange laws, over allegations that the company had illegally transferred money abroad. The amount was worth about $676mn at the time.

Xiaomi challenged the action, saying that 84% of the money involved was royalty paid to Qualcomm for chip licensing.

The company argued that these were normal business payments rather than money being diverted from India. The adjudicating authority upheld the seizure, and the funds remain frozen four years later.

The size of that frozen amount puts the situation into perspective. Xiaomi has been unable to access a sum larger than its current annual revenue from India while its position in the market has weakened. Its Indian revenue was $2.52bn in 2025, about 40% lower than three years earlier.

That is a significant change for a company that entered India in 2014 selling smartphones at prices that helped it quickly gain market share. Xiaomi eventually became the country’s largest smartphone brand, but its Indian business is now considerably smaller.

Xiaomi is not the only Chinese smartphone company facing regulatory scrutiny in India. Authorities have also investigated Vivo and Oppo over alleged fund diversion.

Since 2020, Chinese hardware companies that built large businesses in India before relations between the two countries deteriorated have faced continued regulatory pressure.

Those investigations have often taken years to resolve. So far, the uncertainty itself has had a bigger commercial effect than any penalties imposed.

The next decision rests with India’s Ministry of Corporate Affairs. It can accept the SFIO’s recommendation and order an investigation, or decide not to proceed.

A full SFIO investigation would give authorities powers including searches and arrests and could take years to complete. If one is ordered, Xiaomi may not know the final outcome until around the end of the decade.