After Xiaomi was caught by the Enforcement Directorate in the massive royalty fraud and money laundering case last month Vivo has been booked for duty evasion and illegally sending Rs 62,000 crores ( $7.8 billion ) to China early last week. The Enforcement Department also claimed that Huawei repatriated over Rs 750 crores ($100 million ) to China illegally last year even though profits fell. The money laundering by Chinese phone companies in name of manufacturing ‘made in India phones’ has been going on for years.However it picked up pace once the Govt of India introduced the production linked incentive PLI scheme for made in India phones in 2019. The PLI scheme that gave 6% cash back incentive for incremental production above Rs 4000 crore each year was intended to benefit local production but it ensured explosive growth of Chinese phone makers. Domestic players like Lava and Micromax just faded from competition. In just three years time the Chinese captured 75% of India’s smartphone market before the Govt of India started investigating what was actually happening and how cheating and money laundering was being done by the Chinese phone makers. The Enforcement Department has now conducted raids on all three Chinese phone makers Xiaomi, Vivo and Huawei and seized assets worth hundreds of million in five states and frozen bank accounts to stop money laundering.
The BBK Electronics group of China that owns Vivo, Oppo, Real Me and One Plus brands was the first to pounce on to the opportunity setting up local entrepreneurs in the 5 phone producing states of Karnataka, Tamilnadu, Andhra, Telangana and U.P. to front as Indian manufacturers of Chinese phones in quick time. In the year 2018-19 it had smartphone sales of Rs 38,735 crores as against Rs 43,088 crores of market leader Samsung India. Massive imports from China in CKD form and quick reassembly in these workshops followed by relabelling as ‘Made In India’ ensured 65% growth of smartphone sales to a phenomenal Rs 65,635 crores in the year 2019-2020.
Because these were not made in India phones the volumes could be ramped up so quickly. By contrast Samsung India which had taken a decade to establish it self as India’s largest smart phone maker grew 21% that year with sales of Rs 52,315 crores. Xiaomi, the market leader today had sales of Rs 38,196 crores then. But it soon entered the relabelling game and as it’s sales soared they started repatriating thousands of crores back to China as royalty though their phones as per contract were supposed to be made in India. In April the ED which was investigating Xiaomi for several months seized assets worth Rs 5500 crores ( $750 million ) on charges of money laundering and royalty fraud
Apart from allegations of violation of contract procedures in the PMLA scheme the ED has started investigation against one of the directors of Vivo against forging papers of Chinese officials and distributors in the state of Jammu and Kashmir. The companies directors have fled India. Investigations are also on against other companies of the BBK Electronic group that include phone makers Oppo and Real Me who have been adopting similar methods to ramp up production in India and claim PLI incentives. Both Income Tax and ED are investigating these Chinese phone makers .