Apple's Retail Store Openings in India May Be on Hold

Apple reportedly won't qualify for a waiver that allows products that are "cutting-edge" but not 30 percent made in India to be sold there.

Apple stores in India

The government of India apparently doesn't consider Apple's products to be "cutting edge" or "state of the art," which could delay the opening of the company's retail stores in a country that has one of the fastest-growing smartphone markets and is expected to be the fastest-growing large economy through at least 2018.

Legislation in India dictates that in order for foreign retailers to sell products in India, 30 percent of the value of the goods must be produced in India. A legislative change last year exempted makers of high-tech goods. However, Apple's products don't meet that stipulation, an unnamed official with knowledge of the matter told Reuters, according to a May 25 report.

The source further added, "They did ask for a waiver but didn't provide any material on record to justify it. The decision was taken only after a thorough examination of their application."

The waiver applies only to "state of the art" or "cutting-edge technology," he added.

Bloomberg reported in February that Apple had submitted an application to open retail stores in India but had not done so according to the required "format," and so had resubmitted its application.

Apple manufacturer Foxconn is said to be planning to build a factory India, in Maharashtra, according to the Economic Times of India. The plant would qualify Apple for the 30 percent standard, but it won't be functional for at least 18 months.

Sharing the details of Apple's fiscal 2016 second quarter on April 26, CEO Tim Cook said iPhone sales in India were up 56 percent from a year ago.

Among the difficulties of selling in India, said Cook, are the country's LTE network, which is just being rolled out this year, and the challenge of building out its channel.

"Unlike the U.S. … where the carriers in the U.S. sell the vast majority of phones that are sold in the United States, in India the carriers in general sell virtually no phones. And so it's out in retail, and retail is many, many different small shops," said Cook.

He added that Apple has been working with India for a couple of years, but with "great energy" over the last 18 months or so.

Cook said: "I'm encouraged by the results that we're beginning to see there, and believe there's a lot, lot more there. It is already the third-largest smartphone market in the world.

"But because the smartphones that are working there are low end, primarily because of the network and the economics, the market potential has not been as great there," he continued. "But I view India as where China was maybe seven to 10 years ago from that point of view, and I think there's a really great opportunity there."

During the first quarter of 2016, Apple—while ranked eighth among India's top smartphone vendors—was the second-fastest-growing vendor in the top 10, according to research firm Canalys.

Samsung, the top-ranked vendor, saw its share of the market in India fall from 66 percent to 41 percent between 2015 and 2016, while Apple's share grew from 11 percent to 29 percent.

"Successive price cuts to the iPhone 5s made it the most popular Apple device on the market, despite its smaller screen and outdated hardware," Canalys analyst Wilmer Ang said in a May 3 report.

However, Ang added, "Apple's growth run could be short-lived. The 5s' success in India has more to do with affordability of a premium brand than a preference for smaller phones, and the move to the more expensive SE will discourage budget buyers. Also, the recent government regulation curbing discounts on smart phones sold by online platforms will affect demand."

Cook visited India earlier this month, spending time with Prime Minister Narendra Modi and sitting for a 20-minute interview with an Indian television station.

According to Re/code, Cook confirmed during that interview that, regarding its retail stores, "We have not been given the green light."