After the news about the security alert issued by IAF, regarding the Chinese phones and especially with reference to Xiaomi, IAF have clarified to Indian Express and have mentioned that they did issue the advisory and it was 4 months.
IAF had issued a medium alert with reference to Chinese phones about 4 months back and there was no ban as such. The IAF personals are free to use Chinese phones but with caution. Interestingly the advisory itself is 4 months old, even before Xiaomi had started selling their smartphones in India.
Xiaomi had also clarified that they do not store info without user permission. There are certain features on the smartphone like the cloud services / OTA updates that need a server. Xiaomi had also mentioned that they are shifting servers from China to US and will be having a dedicated server in India itself in 2015. This step will not only improve user experience (faster downloads / uploads) but also take care of such issues that some may not be comfortable with.
An IAF personal stated (to Indian Express) that it is an old advisory and not really a ban. There are no restrictions for IAF personals regarding use of any phone or any brand as such. Moreover IAF does not keep track of any smartphones / brand – the Advisory is nothing serious.
IAF have started using their own network based cell phones – so technically they are not using the mobiles / networks that are available for common users.
So the Xiaomi smartphones are not really a threat for common users, but still a threat to other Mobile manufacturers specially when it comes to aggressive pricing.