India’s crackdown on Chinese phone makers is just the first step in its economic development strategy

Emboldened by US support, India is targeting Chinese smartphone companies after benefiting from their capital and technology
But India’s economic nationalism is not new and once its other industries have matured, more foreign corporations can expect the same fate

Liu Zongyi

Published: 4:38pm, 27 Jun 2023

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In recent years, the Indian government has intensified its crackdown on Chinese companies in the country, most prominently in the smartphone sector. The latest target is Xiaomi, once the top smartphone brand in India but now facing an uncertain fate with funds frozen amid an official probe.

Earlier this month, the Chinese mobile phone maker received official notices over allegations of illegally transferring more than 55.5 billion rupees (US$677 million) to foreign entities. Since last year, the government has frozen a similar amount of Xiaomi’s funds, amounting to more than half of its 2022 net profit. Xiaomi has explained that over 84 per cent of this payment was a royalty paid to Qualcomm Group in the United States, but the Indian authorities have so far refused to unfreeze the money.

This was followed by more foreboding news. On June 13, Indian newspaper The Economic Times quoted sources saying the government has asked Chinese mobile phone makers in the country, including Xiaomi, Oppo, Realme and Vivo, to appoint locals to key corporate positions, such as the chief executive, operating, financial and technical officers. They were also reportedly asked to appoint Indian contract manufacturers and local distributors.

This approach disregards international law and basic commercial principles.

India is becoming known as a graveyard for foreign companies. In addition to Chinese firms, multinationals such as Amazon, Walmart, Vodafone, Nokia, Samsung and Google have either suffered regulatory setbacks in the Indian market or been subject to huge fines.

From 2014 to 2021, as many as 2,783 foreign companies and their subsidiaries ceased operating in India.

Indian Prime Minister Narendra Modi (centre) unveils the logo for the “Make in India” initiative in New Delhi on September 25, 2014. Photo: AP

On display are the protectionist tendencies of both the Indian government and local capitalists, who seek a dominant place in the world economy even when the local industry is not up to standard.

The Modi government seeks to promote development through its “Make in India” campaign. It invites foreign capital and technology to develop Indian industries but appears unwilling to fully allow access to its market in the spirit of fair competition.

Once the industries supported by foreign capital have matured or new markets have been opened up, Indian consortiums suddenly seem eager to take possession. Where fair competition gives them no advantage, they are not above lobbying the government.

India’s crackdown on Chinese phone makers is an example. Their entry opened up the Indian smartphone market, helping it grow in size and sophistication, and driving the development of the local smartphone manufacturing industry.

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Now that India has become the second-largest mobile phone manufacturer in the world, the government is putting regulatory pressure on Chinese phone makers.

For years, New Delhi has been pushing to localise smartphone production, including through tariffs on imported parts, first encouraging local assembly, then component production.

Economic nationalism is not new to India. But in the past, this was an attitude that was directed at all foreign investment. In recent years, however, India’s crackdown on Chinese companies has been particularly severe.

This has been linked to the deterioration in China-India relations and the rise in strategic competition between China and the United States, which counts India as an ally.

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Perhaps New Delhi believes it can get away with it, given the joint efforts of the US, the European Union, Japan and South Korea among others to suppress China, and the lack of support among Western nations for China.

India’s economic development strategy seems clear: it will cooperate with Washington and its allies under the US’ Indo-Pacific strategy to contain China, while promoting the transfer of industries and supply chains to India, ultimately leading to India’s economic take-off and rise as a great power.

The Indian government’s crackdown on Chinese smartphone makers such as Xiaomi is only the first step. Such a policy is likely to be extended to manufacturers in other industries, such as for laptops, home appliances and solar products.

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India will maintain a friendly attitude towards companies from countries such as the US, Japan and those in Europe – for now. This is probably because India is both eager to attract capital and advanced technology from these countries and wary of political pressure. Besides, the industrial and supply chains that the foreign hi-tech companies are investing in may not yet be mature enough to stand on their own.

Taiwan is among the economies looking to boost investment in India. But a word of warning: Taiwanese companies do not have the political security enjoyed by US, European and Japanese companies. Once their investments in India mature, Taiwanese companies may well suffer the same fate as their mainland counterparts.

Dr Liu Zongyi is a senior fellow and secretary general of the South Asia and China Center, Shanghai Institutes for International Studies (SIIS)