The Sticks hit back late in the third quarter, with Kane Russell scoring from a penalty corner, but Manpreet Singh settled the result in India's favour.
The Black Sticks will play Japan for third place on Sunday, with midfielder Arun Panchia admitting his side would need to improve.
"We knew it was always going to be a very tough game and India put together a good performance against us - they played well and deserved their win," Panchia said.