Xiaomi, Realme and other Chinese companies may be banned from selling smartphones under Rs 12,000 in India

India is seeking to restrict Chinese smartphone makers from selling devices cheaper than 12,000 rupees ($150) to kick-start its struggling domestic industry, dealing a blow to brands including Xiaomi Corp.

The move is aimed at pushing Chinese giants out of the bottom of the world’s second-largest mobile phone market, according to people familiar with the matter. Coinciding with growing concern about big-box brands like Realme and Transsion undermining domestic manufacturers, they said, they requested anonymity as they discussed a sensitive issue.

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

Xiaomi shares extended losses in the final minutes of trading in Hong Kong on Monday. It fell 3.6%, continuing its decline this year to more than 35%. People said it was not clear if Prime Minister Narendra Modi’s government would announce any policies or use informal channels to express its preference for Chinese companies.

What Bloomberg Intelligence says

Xiaomi smartphone shipments could drop by 11-14% annually, or 20-25 million units, with sales dropping 4-5%, we calculate, if India bans the retail sale of mobile phones made in China for less than $150 . It accounts for 25% of the segment in India, which is Xiaomi’s most important overseas market, with 66% of its smartphones priced below $150, according to IDC.

New Delhi has already subjected Chinese companies 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 allegations of money laundering. The government previously used unofficial means to ban Huawei Technologies Co. and ZTE Corp. Although there is no official policy banning Chinese network equipment, wireless carriers are encouraged to purchase alternatives.

This move should not affect Apple Inc. or Samsung Electronics Co. which are increasing the prices of their phones. Representatives of Xiaomi, Realme and Transsion did not respond to requests for comment. Spokespeople from India’s Ministry of Technology also did not respond to Bloomberg News’ inquiries.

Read more: India accuses Chinese phone maker of tax evasion as investigations grow

India ramped up pressure on Chinese companies in the summer of 2020 after more than a dozen Indian soldiers were killed following a clash between the two nuclear-armed neighbors on a disputed border in the Himalayas. It has since banned more than 300 apps, including Tencent Holdings Ltd’s WeChat. and ByteDance Ltd.’s TikTok. With strained relations between the two countries.

Local companies like Lava and MicroMax accounted for just under half of smartphone sales in India before new entrants from the neighboring country entered the market with cheap and feature-rich devices.

Chinese smartphone companies now sell the vast majority of devices in India, but their market dominance has not been “based on free and fair competition,” India’s new technology minister told Business Standard last week. The repeated annual losses incurred by most Chinese phone makers in India, despite their leadership position, add to criticism of the unfair competition.

In particular, people said, the government continues to require Chinese executives to build up local supply chains, distribution and export networks from India, indicating that New Delhi is still very much interested in their investment.