So I'd guess the conclusion is that olympic medals have nothing to do with population size or money.
  Instead it has everything to do with if the country cares or not. India clearly doesn't.

I partly agree your views that performance at global events depends a lot on how much priority and importance a particular society (and hence it's government) gives to sports.

But money does matter a lot. Countries who are doing well in global sports arena, either have a very strong government sponsored program (e.g. China) or solid private backing (USA?). It does take a lot of investment to churn out superstar sport-persons.

Till now sports was not on the highest priority list here, and add to that pains of a huge developing nation, the state sponsored program is just for namesake. Interestingly the first individual gold medal winner (in shooting) for India, comes from a very affluent family, and even has his own private shooting range.

Once more money, and more 'focus' comes in, things would definitely change.