The iPhone 7 is the biggest test yet for Apple in India

Apple faces biggest test in India yet

The iPhone 7's debut could be a litmus test for Apple's future in India, where a series of challenges has left the company looking like it's in "no hurry" compared to the competition, analysts told CNBC.

But the new iPhone's Oct. 7 launch in India could improve the company's fortunes, as it comes just weeks ahead of the nation's gift-giving season. It could mean reduced prices on older models, analysts said, and make more iPhones accessible in one of the world's fastest-growing smartphone markets.

It all comes at a crucial time for the company, as it looks for a stabilizing growth market amid a tenuous relationship with China, said Neil Shah, research director of devices and ecosystems at Counterpoint Research. In India, 16 percent of the population had a smartphone at the end of 2015, compared to 44 percent globally, according to Ericsson's Mobility Report.

With an estimated 2 percent in smartphone market share in the country, Apple has been no match so far for the complicated regulatory environment in India, where everything from opening a retail store to refurbishing old phones favors entrenched players and adds enormous relative cost to Apple's sticker prices. The Indian iPhone 7 is expected to to be up to $250 more expensive than in the U.S., nearing $900 — in a country where the average person made just $1,581.60 last year, the World Bank estimates.

But to grow, Shah said Apple must strike in India before new smartphone users get too tethered to the Android ecosystem.

Despite its low starting point, India is already one of Apple's fastest-growing markets — iPhone sales in India were up 51 percent year on year In the first three quarters of this fiscal year, CEO Tim Cook said during an earnings conference call. And though there are challenges, Apple is a highly desired brand there, experts say.

That bodes well for Diwali, the peak of the festival season, when consumption and gift giving takes on a Christmas-like uptick. For instance, Amazon India saw its biggest day for mobile phone sales ever on the third day of the 2015 "Great Indian Festive Sale," with more than 20 percent of phones above the 20,000 (about $300) price range.

"When a new device comes out ... you see an associated price cut for older models," said Ishan Dutt, research analyst at Canalys. "That's one source of growth for Apple. People who previously couldn't afford the device are pulled in. There are still very wealth consumers there, and there are things that could sort of help it."

Meanwhile, the telecom industry in India is undergoing disruption. Wealthy mogul Mukesh Ambani has promised that Reliance Jio will offer the world's cheapest internet data by far. Though that plan has its challenges, such a move could make smartphones within reach of much of India's population.

But while Apple co-founder Steve Jobs identified deeply with India's "intuitive" culture, making inroads in the world's second-most populous country has seemed anything but instinctual for the tech giant. Its iPhone SE, once thought to be a play at emerging markets, "failed to make any significant impact" in India in the second quarter, IDC estimates.

Steep local taxes are part of the problem, Dutt said. There's also an import duty as long as Apple continues to assemble its phones outside of India, Shah said. Then there's the lack of Apple retail stores in the nation, leaving vendors to pile markups on the already hefty iPhone price tag.

Plus there's the resale market, which is healthy in some respects, Dutt said. But Shah adds that to avoid the buildup of electronic-waste, the nation has strict limits on importing refurbished products, potentially including iPhones. Different SIM card standards present more hurdles.

The company recently announced a developer center in Bangalore, as Cook looks to shift the landscape in India. It's an example, Shah said, of a show of good faith as the company seeks to gain favor among regulators.

Though these changes might not come fast enough to meet the iPhone 7, they might set up a presence ahead of the iPhone 8, already expected by some analysts to be a hit.

"We look forward to opening retail stores in India down the road," Cook said in a recent earnings call. "We see huge potential for that vibrant country."