I agree PayPal is in difficult situation in India, but they ideally should register themselves as proper banking service provider before providing money related services worldwide. I am unsure how they got that big even before registering in their home country.
They accept payment/cash from individuals, as well as keep it without giving any interest and also they transfer it into cash in foreign countries. They are actually breaking laws, but they are still in business.
In India the conditions are changing, the RBI(Reserve Bank of India) wants the banks to monitor and report every suspicious banking activities to them, on the other hand the PayPal can’t actually report or give details of every transaction before it can control person to person transactions, and that is what they have done. I have come to know from a lot of sources(specially the DigitalPoint Forum) that PayPal is returning/refunding payments made to/form Indian PayPal accounts. From now on only Business/Service related transactions are allowed and personal transactions to and from India PayPal accounts are disabled. This is all due to RBI restrictions. Keep in mind that a lot of PayPal transactions are related to Indian users.
With increasing competition and tough rules I am unsure about the future of eBay India as well.
Another thing is: as USD/INR forex rates are fluctuating, they find themselves in a bit trouble to keep up their services in India. I am sure how they can handle the differences, but it would require some preparation on their side. The paypal to bank withdrawals are being delayed in India, I also initiated a withdrawal on 31st January 2010 and still waiting for the money. It has been over 7 days and usually PayPal funds are deposited in Bank accounts in 24 hours, I guess they will find a way to complete the due transactions in short time. I am not like Uncle Scrooge, but I Love my money. 🙂
I like PayPal for being a good and simple alternative to other expensive payment processors online, But they need to change the way they serve their users, specially in India.
Update(10th February 2010): In pretty unprofessional manner, today paypal refunded my money back to my PayPal account without even giving any reason or notification. They should at least inform the users if they are having some kind of problem. Anyway, now I am going back to xoom.com to withdraw my paypal balance. Let’s see what’s their response. If you would like to use xoom, you can use following xoom coupon code for 100% fee waiver: XOOMONETIMER