The five-match one-day international series was decided after three games overnight when India cruised to a five-wicket win in Indore.
Smith dropped man-of-the-match Hardik Pandya on 42 just as Australia eyed a glimmer of hope during India’s run chase.
Defending a below-par total of 293, if Smith had held on, India would have been 5-216 with two fresh batsmen at the crease.
But Pandya got away with putting an Ashton Agar delivery high into the air behind Smith at cover.
“It was swirling a little bit,” Smith said.
“There was a fair bit of spin on the ball but I expect myself to take those chances.”
Smith missed two opportunities in the series-opener in Chennai.
He dropped a regulation catch at second slip and failed to get his hands to an edge later in the innings while fielding in the same position.
Smith also grassed a chance in the tourists’ warm-up game against an Indian Board President’s XI.
“If I get my hands to the ball I expect to catch them,” Smith said.
“At the moment my catching hasn’t been good enough.
“I’ve been working hard, I just might need to work a little bit harder.”
While his fielding has fallen away, Smith has notched back-to-back half-centuries in a struggling batting line-up.
His knock of 63 in Indore was primarily a support role for Aaron Finch who smashed 124 from 125 balls in his return from a calf injury.
But again Australia’s middle order crumbled when they were most needed.
Opener David Warner made a handy 42, while No. 3 Smith was furious with himself when he got out caught at long-off for 63.
When Finch departed after a slog sweep went down deep mid-wicket’s throat, the rot set in.
Australia lost 5-51 in a 10-over period and could only muster three boundaries in the final 11 overs of the innings as the Indian attack tightened the screws.
Glenn Maxwell (five) and Travis Head (four) both failed, while part-time wicketkeeper Peter Handscomb made three and dropped Sharma on 67 after being brought into the side following Matthew Wade’s axing.
Former Australia captain Michael Clarke believes that decision means Wade faces an uphill battle to retain his spot for the Ashes.
“That’s a big decision from the Australian selectors,” Clarke told Indian broadcaster Star Sports.
“Because now I think it’s very hard for Matthew Wade to fight his way into that Test team as well.”
Wade had failed to post a double-figure score in his past five innings in one-day cricket and past three in Tests.
Left-arm spinner Ashton Agar dislocated a finger on his right hand while fielding but returned to bowl to complete his 10 overs, finishing with 1-71.
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