The company in April had approached the Department of Industrial Policy and Promotion (DIPP) for opening single brand retail trading in India.
"They were seeking exemption from the mandatory local sourcing norms. Now they have withdrawn this request," an official said. No immediate comments were received from the company.
The development has come close on the heels of Finance Ministry rejecting a proposal to give exemption to iPhone maker Apple from the mandatory local sourcing norms for opening its retail stores in the country.
However, Commerce and Industry Minister Nirmala Sitharaman has said that she will discuss the issue with the Finance Ministry.
Last year, the government had relaxed the foreign direct investment (FDI) policy for single-brand retailing.
As per the policy, the government may relax the sourcing norms for entities undertaking single-brand retailing of products having 'state-of-the-art' and 'cutting edge' technology and where local sourcing is not possible.
At present, 100 percent FDI is permitted in the sector but the companies are required to take FIPB permission if the limit exceeds 49 percent.
In respect of proposals involving FDI beyond 51 percent, sourcing of 30 percent of the value of goods purchased will be from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors.
Xiaomi sells its devices through select e-commerce platforms and retail stores.