Xiaomi, the leading player in India's smartphone market with an 18% share, has conveyed to New Delhi that suppliers of smartphone components are hesitant to establish operations in India due to increased scrutiny of Chinese companies by the government. In a letter dated February 6, the company also urges India to consider providing manufacturing incentives and reducing import tariffs for specific smartphone components.

Xiaomi, which assembles smartphones in India using mostly local components and some imported from China and elsewhere, responded to a query from India's information technology ministry about developing the country's component manufacturing sector. The heightened scrutiny of Chinese businesses in India, prompted by a 2020 border clash, has disrupted investment plans and drawn protests from Beijing.

While many Chinese companies in India avoid public statements on the scrutiny, Xiaomi's letter reveals ongoing challenges, particularly in the smartphone sector where critical components are often sourced from Chinese suppliers. Xiaomi India President Muralikrishnan B. emphasised the need for "confidence-building" measures to encourage local operations by component suppliers.

The letter outlines concerns among suppliers related to compliance, visa issues, and unspecified challenges faced by companies in India, particularly those of Chinese origin. Xiaomi calls on the government to address these concerns and boost confidence among foreign component suppliers, urging them to establish manufacturing facilities in India.

The letter also advocates for a reduction in import tariffs on certain sub-components used in batteries, USB cables, and phone covers. Xiaomi contends that lower import tariffs could enhance India's manufacturing competitiveness by reducing costs. However, the company highlights the necessity for significant incentives to attract component manufacturers to set up operations in India.

Xiaomi's plea for a conducive business environment comes amid regulatory actions against Chinese companies in India, including allegations against Vivo Communication Technology and the freezing of over $600 million in Xiaomi assets for alleged illegal remittances. The letter emphasises the importance of addressing these issues to foster a more favourable environment for Chinese businesses in India.

The source also reveals that executives from Chinese electronics companies encounter difficulties obtaining visas to enter India, and their companies face delays in investment clearances due to intense scrutiny by New Delhi. Xiaomi's letter concludes by aligning with the statement made by India's top industrial policy bureaucrat in January, suggesting a potential easing of scrutiny on Chinese investments if the border situation remains peaceful.