Today, that price gap no longer exists. In 2018, Apple can simply kill the SE and replace it with the 6s in the $349 slot. Apple can move the tooling and know-how of 6s to India. The 4" form factor is no longer competitive. The 4.7" form factor now in its 4th year of production, is likely very cheap, approaching the cost of 4".
It not just because its price people buying it, many people still prefer small sized phones and 4" screens. The correct 4.7" form factor are to big to my taste, let alone the plus version and even the new X, but i dont mind if they'll increase the screen size as long as they'll keep the same size-shape-weight of the correct SE (maybe MiniX in the future...).