The RBI wants to treat PayPal like a bank and subject it to the same regulations as other banks (whether those regulations are fair or obstructive is subject for another discussion).
PayPal wants to run around and be bank-like, but not really a bank.
I agree this is true, but I say so in a completely neutral tone, devoid of any judgment. Running around and being X-like but not really an X is the entire point of creating disruptive products and services. For example, Amazon wants to run around and be bookstore-like, without really being a bookstore.
This is obviously bad when they do bad things, and good when they do good things. But it's really the heart of the value proposition for a disruptive service.
This is more of an anti money laundering thing than anything else. And in India's case, it is more often than not used to fund terrorist cells.
Who exactly is being helped by taking away the Paypal option from consumers (besides bankers)?
Presumably it helps the government keep track of your earnings.