Its not just the black money, its consumer protection that the Government is keen on.

India Government just wants Paypal to behave like a bank if they are going to hold consumer;s money. If Paypal follows the regulation, they will end up paying interest on the money they hold. And they will forced to insure the amount.

And paypal works around this issue by pushing the money to consumers bank when it reaches the legal limit.

You can't blame the Government for this mess. Its Paypal that is working around the system.