Following a clash between the armed forces of the two countries, the Indian government banned several apps which were based in China citing national security concerns. Ahead of the ban, the Indian government also started an investigation into Xiaomi’s financial dealings. The results of the said investigation alleged that the company had violated the Foreign Exchange Management Act (FEMA). It was revealed that the company had sent millions of dollars to its foreign friends over the years. A few years back, the Delhi high court had ordered the seizure of funds from the Chinese technology company after they failed to timely respond to a notice sent by the Enforcement Directorate. Xiaomi had challenged the court’s ruling and claimed that the transfer of funds was a legal setup. Recently, an Indian high Court has once again rejected the company’s plea to cancel the seizure of $676 million.
India-China ties:
The relations of the two countries have been strained for as long as I could remember but recently the impact of these relations has been significantly felt on the technology industry in the two countries. India, the most populous country in the world, is the largest market for most companies in China. The electronics industry in specific is full of Chinese products from brands like Huawei, Oppo and Xiaomi. These brands have enjoyed an increased market in the country which resulted from their cheap products with good features. What people in India have failed to realize over the last few years is that these products were not only cheap in terms of price but also in terms of quality.
Xiaomi which has invested heavily in the Indian market is at risk of losing it all because of the $676 million dollars which it might lose. The actions against Chinese companies are said to be driven by a variety of factors which include national security concerns, economic considerations, and a desire to promote domestic technology firms. The world’s largest democracy has also been concerned about the potential these companies possess to engage in espionage against the Indian government.
Arguments:
The smartphone manufacturer has claimed that the payments were sent out as royalties which were being sent as per Indian laws. In a statement, the company had claimed that the payments were for the licensed technologies and the IPRs which were being used in the Indian versions of the brand’s products. The tax authority in India had argued that the company had sent out these payments to three of its subsidiaries based outside of India to avoid paying taxes for that amount.
The Judgement:
The High Court has now restricted the China based brand from making payments in any form to companies located outside of India. They have also rejected the plea that Xiaomi had put in hopes of saving millions of dollars. The court concluded that the company had in fact tried to hide details from Indian agencies and was liable for the damages done to the country.
Implications:
The India High Court’s decision to uphold the seizure of Xiaomi’s of these funds is likely to have severe consequences for the Xiaomi and the India-China relationship in terms of technology. The Chinese electronics giant would likely lose a significant amount of assets. The extent of their operations within the country will undoubtedly be compromised and could potentially lead to reduced investment and a declining market share. The company might also face additional legal challenges in the coming days.
In conclusion, Xiaomi might add to the list of Chinese brands which sustained losses due to the actions of the Indian government. The ban on several Chinese apps had already severely affected the profits of Chinese companies affected by the move. Therefore, the recent judgement of the Indian judiciary will have negative consequences for the Chinese brand.
