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EconomyBusinessHow India plans to kick out cheap Chinese phones from market

How India plans to kick out cheap Chinese phones from market

India seeks to restrict smartphone makers from selling devices cheaper than Rs 12,000 rupees ($ 150) to kickstart its faltering domestic industry, dealing a blow to brands including Xiaomi Corp. The move is aimed at pushing Chinese giants out of the lower segment of the world’s second-biggest mobile market, according to sources in the telecommunication department. The plan coincides with mounting concern about high-volume brands like Realme and Transsion undercutting local manufacturers, they said, asking not to be identified discussing a sensitive matter.

Exclusion from the entry-level market in India would hurt Xiaomi and its peers, which in recent years have increasingly relied on India to drive growth while their home market endures a series of Covid-19 lockdowns that crippled consumption. Smartphones under $ 150 contributed to a third of India’s sales volume for the quarter through June 2022, with companies accounting for up to 80% of those shipments, according to market tracker Counterpoint.

Xiaomi’s shares extended losses in the final minutes of trading in Hong Kong on Monday. It slid 3.6%, extending its decline this year to more than 35%. It’s unclear whether Prime Minister Narendra Modi’s government will announce any policies or use informal channels to convey its preference to companies, the people said.

What triggered India

India amped up pressure on firms in the summer of 2020 after more than a dozen Indian soldiers died following a clash between the two nuclear-armed neighbours on a disputed Himalayan border. It has since banned more than 300 apps, including Tencent Holdings Ltd.’s WeChat and ByteDance Ltd.’s TikTok, as relations between the two countries fray.

The government studied the market domain, where smartphone players now sell the vast majority of devices in India, but their market dominance has not been "on the basis of free and fair competition", India’s junior tech minister recently said. Recurring annual losses posted by most Chinese handset makers in India, despite their leading position, add to criticism of unfair competition.

The benefits accruing to manufacturers are essentially due to seven factors: economies of scale in manufacturing, tariff differentials, lower cost of capital investment, higher labour productivity, lower transaction, power and transportation costs.

Homegrown companies such as Lava and Micromax comprised just under half of India’s smartphone sales before new entrants from the neighbouring country disrupted the market with cheap and feature-rich devices. The survival and growth of micro, small and medium enterprises (MSMEs) in India depend on a number of factors like availability of timely credit, upgradation of technology, infrastructure, access to market, quality of products, etc, a situation that the Narendra Modi government has been trying to improve for the past eight years.

How can India manage to turn products unmarketable while sparing the competition from domestic players, the US and South Korea?

"The products manufactured in China are of lower price mainly because of their opaque subsidy regime and distorted factor prices," then-Minister of State for MSME Haribhai Parthibhai Chaudhary had said in the Lok Sabha in July 2017. 

New Delhi has already subjected firms operating in the country, such as Xiaomi and rivals Oppo and Vivo, to close scrutiny of their finances, which has led to tax demands and money laundering allegations. The government has previously employed unofficial means to ban Huawei Technologies Co. and ZTE Corp. equipment. While there’s no official policy prohibiting Chinese networking gear, wireless carriers are encouraged to purchase alternatives.

The move should not affect US-licensed Apple or the South Korean Samsung Electronics Company, which price their phones higher.

Representatives from Xiaomi, Realme and Transsion did not respond to requests for comment. Spokespeople from India’s technology ministry also did not respond to inquiries.

Is India clearly anti-China in the business domain?

No. In private, the government continues to ask Chinese executives to build local supply chains, distribution networks and export from India, suggesting New Delhi still very much wants their investment, the people said.

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