Well, the iPhone is 600-700 euro in Europe, too, but carrier plans are also cheaper than those in the states, as I would guess are in India. Things indeed look very unfair if you don't factor in subsidies and factor out taxes and duties.
900$ is when you have a carrier plan. There are two carriers in India which sell the iPhone at that rate. Again, anything around 600$ would have done wonders to Apple in India.
I myself would have bought it!
The 16 GB iPhone 4 is €659 with €15 per month for 12 months plan on Vodafone in Greece. I understand that the size of the respective markets is vastly different and that strategically sacrificing margins for market share is more justified for the Indian market, but my point is that higher prices than the US is not unique to India situation.