According a report submitted by the RBI in india:

4.1 VCs, as a medium of payment, are not recognized under Indian laws, and no specific regulation governing VCs has been introduced in India. RBI has not declared dealing in VCs as illegal nor has it introduced any regulatory framework governing VCs. There are also a few entities in India which are operating Bitcoin exchange/trading platforms dealing in buying, selling, storing, using and accepting Bitcoins such as Zebpay, Unocoin and Coinsecure.
4.2 However, RBI, has, from time to time, issued cautionary advisories to the public stating that creation, trading or usage of VCs, as a medium of payment is not authorized by it and no regulatory approvals, registration or authorization have been obtained by the entities carrying on such activities."

My analysis of this is that it isn't illegal, but they advice against it and would prefer if people didn't mess with it. It isn't illegal though so I would do what I wanted... I also wouldn't fear anything as it is not illegal yet. If they made it illegal that is when I would start to worry. They can't do anything if they haven't written anything down beforehand banning it, or else that would be extremely unreasonable for a gov't or bank to do.

Also the other day I was researching and stumbled upon an Indian crypto exchange: https://btcxindia.com
I would assume that if it is illegal you wouldn't see that site lasting very long...