Does server proximity still matter to your target audience and/or SEO?
Yes but not as much as it once did. Why? All things are seldom equal. Server load, hardware & software configuration matter as much or more than server location to web site response time and/or latency. You do not want your web site/server subjected to load averages that adversely affect website page loads. Lower server load averages are always better. However a load less than 1 is not required to achieve optimal web site/server response time. Better hardware supports higher load averages without adversely affecting page load times. However I would avoid server loads that average 4 or more. Especially when server are not running state of the art or almost state of the art hardware. Shared, Reseller & VPS web hosting providers can provide you with load averages for their servers upon request. Dedicated providers won't have this information before server deploys.
Data Center routing to carrier hotels, average server load & configuration affect web site/server response times more or less. Countries and continents with the most/largest carrier hotels should be the first consideration when deciding where to host your web site/server. Seven (7) out of ten of the largest Carrier Hotel Data Centers in the world are currently in the USA. Thus hosting your web site/server in the USA should be considered regardless of where your target audience are. Asia then Europe would be second and third locations to consider hosting your web site/server. On the Asian continent China has a larger Carrier Hotel Datacenter than Bangalore. However if privacy and/or Chinese oversight are a concern I would recommend Bangalore or Europe alternatives to USA.