You are not allowed to bring Indian currency into the country, or take it with you when you leave. The rupee is fully
convertible so there's not much of a black market, even though you'll
constantly be haunted by offers to 'change money'. In cities you can change
most major foreign currencies and brands of travellers cheques - but you'll
widen your options and save yourself hassles if you stick to US dollars or
pounds Sterling and either Thomas Cook or American Express travellers cheques.
In fact, it's wise to bring a couple of different brands of cheques in
different currencies since some branches of some banks have particular
idiosyncrasies, such as refusing to handle X-brand of travellers' cheques in
pounds Sterling denomination or Y-brand in US dollars.