Websites offering the service in the US charge up to $100, I think such a service to track phones in India has good potential. What are the legal issues here, and legal procedure to operate such a service?
I presume you mean a location based service ? If so - the legal issues will be dependent on local laws. Also, it does rather depend on whether the operator actually offers the service, and their own terms and conditions for it.
Yes, location based service. Most GSM operators in India do offer the service & besides afaik every cell phone provider needs to know which location or "cell" the user is in to connect calls.
I am well aware of how the GSM network operates - check my username for a hint. You will need to talk to the operators directly to dicuss if they will permit you to offer the service, the costs and the conditions. In the UK (for example) - for obvious privacy reasons - the terms and conditions are very tight and the costs high.