India conducts income tax raids at Huawei offices; continues to act tough on Chinese vendors

The Indian government conducted income tax raids at Huawei offices in Gurgaon in the National Capital Region and Bengaluru in South India recently.
 
Similar raids were held at the ZTE office and at Chinese device makers Xiaomi and Oppo Mobile premises last year as well. Last month Xiaomi was served with a notice for INR 6530 million ($87.37 million) for income tax evasions.

Further, the country banned 54 Chinese apps earlier this month, leading to a total of 224 Chinese apps banned since 2020 in India. These include several prominent apps, like PUBG online games, WeChat, Helo and TikTok, among others.
 
The Chinese government reacted by saying that these measures have "seriously damaged the legitimate rights and interests of Chinese companies with China expressing serious concern in this regard," Chinese Commerce Ministry's spokesperson Gao Feng is reported to have said recently.
 

Understanding the context 

The Chinese telecom vendors Huawei and ZTE have been facing rough weather in India for some time now, particularly after clashes in Galwan Valley on the Indo-China border between Indian and Chinese forces in 2020. The clashes left several soldiers dead on both sides of the border.

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Post these clashes, the Indian government undertook several measures to make it difficult for the Chinese vendors to do business in the country. India changed the rules with investments from neighboring countries, requiring the Central Government's approval, thereby making it tough for Chinese companies to invest in Indian startups. In addition, India barred the Chinese vendors, Huawei and ZTE from participating in the 5G trials.
 
Further, the two companies are yet to procure trusted source approval, which is required for 5G and other contracts. Citing security concerns, India launched a portal, trustedtelecom.gov.in, part of the National Security Directive on the communications sector, last year. The portal identifies the vendors from whom the telcos can procure particular network equipment. Huawei and ZTE haven't been able to acquire trusted source approval.
 

While India accounts for just 4% -5% of Huawei's global business, it is bound to hurt since the company has managed to create a niche for itself in the country over the years. Recently, Bharti Airtel and Vodafone Idea have handed out business to Huawei. Airtel recently gave INR1500 million ($20 million) for a maintenance-of-the-transmission-network contract to Huawei. Reliance Jio has a policy of not working with Chinese vendors. In fact, Jio makes it a point to stress that it doesn't have a single Chinese component in its network.

Why India loves Chinese vendors 

Low-priced telecom gear from the Chinese vendors Huawei and ZTE have helped the Indian telcos offer services at rock-bottom rates. Further, Huawei and ZTE offered long-term loans and easy payment strategies, making it easier for the telcos to procure equipment from them. As a result, Huawei and ZTE were able to create a unique place for themselves in the Indian telecom market. India is also a significant market for Huawei, considering it has been banned from several key countries, including the U.S., U.K. and Australia, among others.
 
With the exit of the Chinese vendors, there is space for the domestic vendors to increase their market share in the country. In addition, the Indian government's policy push with Aatmanirbhar (self-reliant) policy and Production Linked Scheme (PLI) is further helping the Indian telecom vendors to make a space for themselves in the domestic market.

Traditionally, Indian vendors tend to focus on global markets because of better profitability and margins.