The Indian under-19 side went down fighting to Mexico's FC Chivas 1-3 in the semi-finals of the Weifang Cup in Shandong, China.
Pronoy Halder put India ahead early in the first half, but the team failed to hold on to the lead as Chivas restored parity just before the break.
The Indians enjoyed territorial domination in the second session, but it was the Mexican side that scored twice to clinch the issue.
India now face FC Benfica on August 6 in the third place play-off while Chivas take on China's under-19 in the final.
China beat FC Benfica 2-1 in the other semi-final.