Why are iphones costly in india and cheaper in america?

I.e. 5s 16GB in India - Rs 42,000
in US its $199 which is approx Rs.12,200

The $200 price in the USA requires a two-year phone contract. In the US if you want to buy an Iphone without a contract it would cost between $400 and $500.

INFLATION, INDIAN CURRENCY IS WORTH LESS THAN THE DOLLAR

As Stedman pointed out, $199 is the subsidised price you get when signing up for a 2 year contract with one of the US carriers. The actual retail price is $649, which equates to 35,046 INR. The rest can be accounted for by the Indian Government's ridiculously high import tarrifs.