Depending on how long she intends to go to India for, her citizenship application might have to be abandoned. If she doesn't miss, or reschedules, the fingerprinting and interview appointments, and shows a good reason for being out of the country for a long period of time (which she probably can show), she might still be able to go through with it.
As for your baby, see if he or she will qualify for citizenship at birth:
http://www.uscis.gov/portal/site/us...nnel=8554a3ac86aa3210VgnVCM100000b92ca60aRCRD
The link you provided (regarding INA 322) is for children born abroad who did not acquire U.S. citizenship at birth.
The OP's child will most likely acquire U.S. citizenship at birth, as a child born abroad in wedlock to parents one of whom is a U.S. citizen.
See
http://travel.state.gov/law/citizenship/citizenship_5199.html
"Birth Abroad to One Citizen and One Alien Parent in Wedlock
A child born abroad to one U.S. citizen parent and one alien parent acquires U.S. citizenship at birth under Section 301(g) of the INA provided the U.S. citizen parent was physically present in the United States or one of its outlying possessions for the time period required by the law applicable at the time of the child's birth. (For birth on or after November 14, 1986, a period of five years physical presence, two after the age of fourteen, is required. For birth between December 24, 1952 and November 13, 1986, a period of ten years, five after the age of fourteen, is required for physical presence in the United States or one of its outlying possessions to transmit U.S. citizenship to the child.) The U.S. citizen parent must be genetically related to the child to transmit U.S. citizenship."
So all that is required for the child to be a U.S. citizen at birth is that the OP (who states that he is a U.S. citizen) have accumulated a total of of five years physical presence in the U.S., two after the age of fourteen, by the time of the child's birth. If that condition is satisfied, the OP can apply for a consular report of a birth abroad and a U.S. passport for the child at a U.S. consulate in India after the child is born. The OP would have to go to India himself in order to do that.
There is another option - although I am not sure if it is applicable to those children who are U.S. citizen at birth.
Since the OP's wife is a GC holder, her child born abroad does not need a GC to be allowed in the U.S. if the mother brings the child back to the U.S. on her first return trip after giving birth. See:
http://mumbai.usconsulate.gov/legal_permanent_residents.html
"As outlined in 9 FAM 42.1 N1.1, a child under two years of age who was born of a Permanent Resident Alien mother during a temporary visit abroad does not require an immigrant visa in order to travel to the United States if the alien parent is in possession of a valid Form I-551 (i.e. green card), a valid reentry permit, or an SB-1 visa. The child must be admitted to the U.S. within two years of birth and the accompanying parent must be applying for readmission upon first return after the birth of the child. We suggest that the accompanying parent carry documentary evidence of his or her relationship to the child, including the child's passport and birth certificate."
However, as I said, I am not sure if this option may be used if the child is a U.S. citizen. Also, it seems that under this option the child would need a passport (presumably Indian) in order to travel with the mother to the U.S.
