Bitcoin will not be made legal because India has very strict money laundering rules.
Is it possible to wire money to foreign trade exchanges? The answer is NO or extremely difficult - that's why the rate is so much higher in India because you cannot arbitrate with foreign exchanges. So why will the govt allow users to buy BTC with Indian Rupees and move it to other countries without restrictions? This is one main reason BTC cannot be made legal. How to stop people who are doing it (moving BTC out of the country) is another question.

Second reason is that Indian exchanges are amateur operations. See how many times the Indian exchanges go down or face problems with withdrawals and deposits. They are dealing with crores of rupees and BTC - it's a joke. Users face so many problems with these exchanges that it is inevitable that govt steps in to do something.

Third reason is that India is still backward in technology awareness and investing compared to other countries. (Compared to other countries, very few people invest in the Stock Market in India). A simple sms is enough to scam users even in investing in the stock market. How will you stop users from getting duped in BTC scams which will be much more complicated for the common investor to understand? These scams will undoubtedly force the govt. to do something - and it probably won't be good for BTC in India.
*Just look at this thread and the replies. It's like kids fighting with nothing to add. If this is the state of Indians in Bitcointalk, wonder about the common investors/people.

Fourth is in the forex market in India, only Rupee pairs are allowed. Why will the govt. allow BTC/Dollars or Dollars/Crypto when Rupee can easily be converted to BTC and so it can be indirectly traded with other currencies/cryptos?

But the problem for the govt is, how will they stop BTC trading? It's decentralized and and almost impossible to stop it. The govt. is in a big problem and the only thing it can do is wait and watch what happens or ban BTC/cryptos.

It's stupid to ask the govt. to come and regulate BTCs or make it legal like the exchanges in India are doing because the hands of the govt. are tied by it's own rules and regulations. What the exchanges should do is just wait and watch and buy more time. As other countries come up with regulations for BTC, it will make it easier for India to decide what to do too. Right now, the easiest solution for the govt. out of this mess is to ban BTC which would actually be bad for the country.