India put up a disastrous defensive performance in the first quarter to concede two goals to Hugo Inglis (7th minute), Stephen Jenness (13th). But Harmanpreet Singh converted a penalty stroke in the 29th minute. India trailed 1-2 at half-time.
Markus Child regained New Zealand's two-goal lead in the 40th minute. India kept chasing and reduced the deficit to one in the 57th minute through a penalty corner but it proved to be too late to find an equaliser.
India will now head to the bronze medal playoff against the loser between Australia and England.
Coming into the semi-final, India lost the match in the first 15 minutes. It was a worst possible defensive performance to begin a semi-final.
The early focus seemed to be missing when the entire right flank lost its sense of positioning as Inglis intercepted defender Harmanpreet Singh to swiftly drive into the striking circle and employed a successful backhand shot past Indian goalkeeper P.R. Sreejesh.
Then, Inglis made the most of a poor pass from Manpreet Singh near top of the defending circle before passing it on to Jared Panchia, who straight drove at the Indian post. But poor communication among the defenders left Jenness unmarked. Jenness only had to nudge it past Sreejesh to make it 2-0.
New Zealand continued their good performance, earning their first penalty corner in the 22nd minute but Cory Bennett's drag-flick was well-saved by Sreejesh.
India's moment of reckoning came in the 29th minute when Sumit intercepted a New Zealand defender to drive into the right flank. A deliberate foul by New Zealand skipper Arun Panchia resulted in India winning their second penalty corner.
Though Varun Kumar's drag-flick didn't make the post, a deliberate obstruction saw India being awarded a penalty stroke which was converted by Harmanpreet.
India began the third quarter with a penalty corner in the 33rd minute, but again could not make much of it with Harmanpreet's drag-flick being saved by the first rusher.
The following minutes saw Chinglensana Singh and Gurjant Singh create opportunities to score but were off the mark.
New Zealand kept up their momentum, not letting go of scoring opportunities, when they won two back-to-back penalty corners in the 39th minute.
Though their No.1 drag-flicker Kane Russell's effort was blocked, Marcus picked up a good rebound to put it past Sreejesh, earning New Zealand a crucial 3-1 lead.
It didn't help India's cause when they missed two more opportunities to score through penalty corners in the 41st and 43rd minutes.
Under pressure to make their third consecutive Commonwealth Games final, India fumbled on opportunities to score.
Later, Harmanpreet Singh managed to convert a penalty corner with a powerful flick to the right top corner in the 57th minute.
Forward Akashdeep Singh got a yellow card in the 57th minute, making the situation worse for the Asian champions.
With time ticking away, the team could not pull off a finish similar to the one against England when they scored two goals in the final two minutes of the match, thus settling for a 2-3 loss.
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