India seized $725M from Xiaomi — India's phone market leader became a cautionary tale

By 2021, Xiaomi had become India's undisputed smartphone leader, holding over 25% market share through aggressive pricing on models like the Redmi Note series and a massive offline retail network. But the company's India operations were built on a royalty payment structure that Indian regulators would later call an illegal pipeline for moving money out of the country. In February 2022, the Income Tax department froze $478 million of Xiaomi's funds. Two months later came the hammer.

In April 2022, India's Enforcement Directorate seized ₹5,551 crore ($725 million) from Xiaomi's bank accounts under the Foreign Exchange Management Act. The ED alleged that Xiaomi India — a reseller with no direct license from chipmaker Qualcomm — had disguised payments to three foreign entities as 'royalties' to bypass India's exchange controls. 'Payment of royalty is nothing but a tool for transferring foreign exchange out of India,' a FEMA authority later ruled. Xiaomi challenged the seizure, but the Karnataka High Court rejected its appeal in April 2023.

The regulatory crisis triggered a rapid decline in Xiaomi's India business. Managing director Manu Jain resigned, followed by other senior executives. The company cut its India headcount below 1,000, stopped selling non-phone products in the market, and shifted key decision-making back to its Chinese parent. Market share dropped from the top spot to fourth place behind Samsung, Vivo, and Oppo by 2024. As of early 2024, Xiaomi's $725 million remained frozen, and a fresh appeal was pending.