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(Bloomberg) — Tim Cook will need to convince Indian Prime Minister Narendra Modi that the iPhone is cutting edge if the Apple Inc. chief executive officer is to gain easier access to what will be the world’s second-largest smartphone market.

The government on Tuesday said it would relax rules for companies as long as they can prove their technology is so “state of the art” that it’s impossible for them to comply with norms requiring 30 percent of products be sourced locally. The move paves the way for Apple to open its own stores in India, where it depends on resellers to market its China-made devices.

Higher sales in India will help Apple maintain growth amid China’s slowdown, while Modi stands to gain access to top technology that could eventually boost local manufacturing and create jobs. Apple currently has a minuscule 2 percent of the market in India, according to International Data Corp., partly because it doesn’t wrap its devices into discounted deals but also because consumers are denied the Apple store experience that is important to sales.
“It’s a key competitive advantage to have a store,” said John Butler, senior technology analyst at Bloomberg Intelligence. “The retail store strategy is going to be a bigger part of their strategy around the world.”

Apple spokesman Alan Hely didn’t respond to an e-mail seeking comment. Apple shares fell 3.2 percent to close at $116.77 Tuesday in New York.

Sharp Growth

Smartphone shipments to India grew 44 percent in the April- June quarter from a year earlier, making it one of the world’s fastest-growing smartphone markets, according to IDC. The double-digit pace should continue for the next few years, IDC predicted, putting India on pace to overtake the U.S. by 2017.
While half of India’s smartphone buyers have so far preferred devices costing less than $100, that could change as incomes rise. The nation’s consumers are the world’s most confident, according to Nielsen, and they’re taking on more credit as the economy recovers.

Ramesh Natarajan, head of sales at Redington India Ltd., Apple’s main distributor in India, declined to comment when asked if the revised rules will benefit Apple.

–With assistance from Kartikay Mehrotra and Vrishti Beniwal in New Delhi.

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Jeanette Rodrigues, Tony Robinson