Why Indian iphone dealers say that they do not repair any iphone bought outside India?

This is true. Apple's warranty is only local, not international. The Australian iPhone would only be covered in Australia, not in India.

Unfortunately, this is the way it has always been with the iPhone and the folks in India are totally within their rights to refuse to fix your phone if it was purchased from outside the country.

iPhone warranty cover is country specific and NOT international and it has always been that way - if you have a problem with your phone, then it is at their discretion whether they will help you or not and they are perfectly at liberty to refuse if the phone was not purchased in India.

You can take it back and ask them if they will fix it if you pay and they might just do this, but they won't do it under warranty - you will have to send the phone back to Australia for this. If you have a relative in Australia could you not send the phone back to them so that they could get it repaired for you?

Also, Apple is unlikely to help you with this one, as it is their policy in the first place.

Your only other option is to purchase a basic phone to use whilst you are in India and wait until you get back to Australia to get your iPhone fixed under warranty.

As Ethmoid said, this is how Apple's warranty has always been. They may do something in-store, but it would not be covered under Apple's warranty unless the phone was purchased in India.

The problem is that iPhones are region specific. Apple does not repair phones in stores; they replace them with the same model. A store in India will not have the model to replace it with if your iPhone was not bought in India. The exception is any phone bought in a Eurozone country will be service in any other EU country.

That's why it's important to buy an iPhone in the country where you plan to use it most.