Step 1: Understanding the Concept:
This question asks to identify the Indian Prime Minister who was in office during the creation of Bangladesh.
Step 2: Detailed Explanation:
The formation of Bangladesh was a direct result of the Bangladesh Liberation War and the subsequent Indo-Pakistani War of 1971.
During this period, from March to December 1971, the Prime Minister of India was Indira Gandhi.
She played a decisive role in the events. Her government provided diplomatic, economic, and military support to the Bengali nationalist movement in East Pakistan. The Indian Army's intervention in December 1971 led to the surrender of the Pakistani forces and the birth of the independent nation of Bangladesh.
Lal Bahadur Shastri passed away in 1966. Morarji Desai and Rajiv Gandhi served as Prime Ministers much later.
Step 3: Final Answer:
Indira Gandhi was the Prime Minister of India during the 1971 war and the formation of Bangladesh.
Therefore, option (C) is the correct answer.