Hi Sushruth,
This depends on a few things:
1. what you are trying to accomplish (sear, brown, saute, etc).
2. what kind of pan you are using
I mention this because the first thing you should always do when 'following' recipe instructions is to know that many recipes use the wrong terms and mention the wrong temperatures.
To answer your questions when using a stainless steel pan, the water test will not work on lower heat. I would do the water test and then turn the pan temperature down before adding the ingredients (or just set aside for a minute or two). From here, rely on your technique, your observation skills (sight, sound and watching what the ingredients are doing, such as getting too dark, not dark enough). Know your outcome and trust your judgement vs. following instructions.
Oh, and if you are
sweating, then you don't even need to do the water test as you will be cooking on low temperature in fat.