I was in an Airtel shop today (I live in India). They had huge 'iPhone 3GS!!!!' posters. Depressing. It's like $700 for a 3GS here, and there's some kind of contract too, which is virtually unheard of in India.
Apple treats the Indian market like crap. 12.5% vat does not account for the 30% markup that virtually everything on the Indian Apple store (online) sells. I know that every country is more expensive than the USA for Apple products, but adding the 17.5% on top of the vat is just greedy and totally encourages the thriving gray market for Apple goods. I see LOTS of smartphones here, mostly BBs or Nokia garbage. Few iPhones, and I think Apple is mostly to blame.
High prices and insultingly late to market is not a good combination.