Bethell, the world number two, had not dropped a game on his way to his second consecutive final and had beaten Nitesh in their nine previous encounters.
But in a tense and cagey opening game, the Indian top seed seized the initiative at 13-11 down, winning 10 of the last 11 points to take control.
Bethell tried to stay with his opponent in the second game and was rewarded for his efforts as he levelled the match.
In the decider, Bethell recovered from 19-16 down and saved a match point before having one of his own.
But Nitesh rallied again to break the British hearts.
“We always have tight battles so I knew it would be tough today,” added Bethell.
“He came out and hit some good winning shots and was very good and very disciplined.
“I never like losing, particularly having lost one final, but I have to take some pride in getting to this stage.
“However, at this moment I’m just devastated I will be on the second rung.”