Can you not get a USD bank account in India? Paypal would then not need to do any conversion and you could do the transfer yourself from USD to INR using your preferred exchange.
Because RBI's policies have given them another way to make some extra money.
I'm in Canada and my PayPal is USD because i use ebay a lot. My attempt to set up a "US Funds" account for Paypal at TD Canada Trust met with them converting money from a Canadian buyer to US then to CAD just in time for TD to convert it to US to go into the account.
Clearly, I halted that after a day.
PayPal insists that it's impossible to transfer money in any currency except the one related to the address of the bank's head office.
http://bradt.ca/blog/transfer-from-paypal-to-a-us-dollar-acc...