After Chinese smartphone apps, India is now cracking a whip on phone makers from its on-and-off rival and neighbor.

In the last few months, at least three major Chinese smartphone makers have faced investigations from India’s Enforcement Directorate (ED), the agency responsible for enforcing economic laws. In April, the ED seized over $695 million from Xiaomi Technology India Private Limited, a wholly-owned subsidiary of the Beijing-based Xiaomi group. Earlier this month, the ED seized 119 bank accounts holding over $58 million of Vivo India, which is owned by China’s BBK Electronics. A few days later, the ED accused Vivo’s sister firm, Oppo, of $551 million in tax evasion.

Following repeated harassment by the financial crime-fighting authorities, the long-time India head of Xiaomi, Manu Kumar Jain, relocated to Dubai. The company has also accused authorities of physical violence and coercion during questioning. Vivo India’s two Chinese executives have also reportedly fled India on-road to China via Nepal, as the probe intensified.

The Indian Cellular and Electronics Association, an industry body of which Xiaomi is a part, wrote a letter to the Finance Minister highlighting that the recent action against Xiaomi for “royalty payments on intellectual property” stems from the investigators’ lack of understanding of how royalty payments work for smartphones.

This crackdown comes around two years after India abruptly banned 59 Chinese apps amid border conflicts between the two countries. Since then, India has extended the ban to over 350 apps due to “raging concerns” around data security.

While Indians may have learned to live without TikTok and Shein, which were banned in 2020, the country’s dependence on Chinese smartphones is a different story altogether.

Affordable Chinese models have played a key role in the massive proliferation of smartphones in India, which is now the second-largest market for the devices. Chinese brands Xiaomi, Realme, Vivo, and Oppo together account for over 60% of the smartphones sold in India, according to market research firm Counterpoint. Four of the five most-popular smartphone models sold in India belong to Realme, which is also owned by BBK Electronics. The wide adoption of smartphones has aided the growth of sectors such as e-commerce, fintech, and over the top media. Chinese smartphone makers – with their affordable pricing and feature-packed models – have pushed most of their Indian rivals out of the business.

Besides catering to consumers, these Chinese smartphone markets have generated employment opportunities in India. Xiaomi, for instance, has over 50,000 employees across its multiple offices, factories, service centers, and stores in India. “The dependency on the Chinese brands from both a consumer and trade point of view is also too high, and the government cannot be seen creating a vacuum right now, in terms of jobs, trade, and other things,” Navkendar Singh, associate vice president of data and analytics at IDC India, told The Economic Times.
While the optics of being tough on Chinese companies is beneficial, frequent raids dampen the business environment, especially at a time when India is actively courting electronics manufacturers to set up factories to reduce dependency on electronics imports.