I don't think that the government of India doesn't understand how the crypto industry operates. There is nothing complicated about the crypto space that can not be comprehended if one is willing to put in some effort to learn. Learning materials are everywhere and they can easily learn from other countries. Okay let's assume they don't know, but they can easily employ the services of experts in the industry to assist them in making and implementing relevant policies.
They know everything about Bitcoin and cryptocurrency but the problem is that they do not have resources to control the activities. India is densely populated and has the biggest population in the world. The government will need good amount of money to come with resources to control activities. Which of course they are unwilling to donas they think it will not generate any future possibilities. This is where the problem arises that lack of experience and understanding about Bitcoin and cryptocurrencies.
The only problem is that the government doesn't have an interest in the sector. The perception that the reason for not making crypto-friendly policies is that it is used for illegal activities is outdated and archaic. The US and other developed countries once had this mindset but they have moved past that era and are now making friendly policies. Government policies are highly dynamic so I cannot write off the possibility of India approving a Bitcoin ETF in the future.
You are spot on about the government mindset and since it is bureaucratic driven democracy, these bureaucrats tend to avoid complex technology. The US is a capitalist democracy wherein every new innovations face initial hurdles but does get approved after lobbying. India is not a capitalist country but a socialist, in the future things might change but it would not happen in the next 5 years.