Tech giant must buy at least 30 percent of parts locally if it wants to launch outlets in the country.
Apple CEO Tim Cook's whirlwind tour of India has failed to win the tech giant a stake in the world's second-most populous country – which is also the fastest-growing smartphone market.
Indian Finance Minister Arun Jaitley decided on Wednesday that Apple would not be exempt from a local-sourcing regulation. The rules stipulate foreign companies must buy at least 30 percent of their parts locally before being allowed to open outlets in the South Asian country.
With dwindling sales in the United States and China, Apple has long been planning to open retail stores in India but has failed to satisfy regulators in the country that it falls under a category exempting foreign retailers selling high-tech goods from the 30 percent rule.
"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," said a senior government official quoted by Reuters.
The waiver is available only for investment in "state of the art" or "cutting-edge technology," he added.
The charm offensive
The potential blow comes only days after Cook toured India in what was widely seen as a charm offensive.
During the visit, the Apple CEO was pictured in New Delhi using Prime Minister Narendra Modi's gold-coloured iPhone as he launched a new version of the premier's eponymous app.
Cook also announced the establishment of an app design centre in the southern technology hub of Bangalore and a maps centre in Hyderabad, showering praise on India's talented software developers.
India sets stringent rules for foreign retailers, seeking to encourage investment that brings in manufacturing jobs rather than simply allowing them to sell products.
The country is a compelling proposition for Apple, with nearly a billion Indians – from a population of 1.2 billion – still not online, especially as sales of the iPhone slow in more saturated markets.
Yet Apple products are too expensive for the vast majority of Indians, with taxes taking the cost of a basic iPhone up to almost $600.