Indian e-commerce is deeply hurt due to strict RBI guidelines that PayPal payments can not be used and will be directly auto debited and will be credited in your bank account registered with Paypal. You can read more about Paypal Auto debit feature for Indians here. Only solace is that one do not get charged for this service.
The above screenshot clearly shows that in accordance with Indian regulations, funds in your PayPal balance can not be used to make payments for the purchase. At first thought, it appears ridiculous as an Indian gets charged twice for conversion as for making any payment he or she has to use the credit card or debit card.
However we should not blame RBI as they are doing the best in the interest of nation as funds received in Paypal might have had been used by some antisocial elements for using it as a route to transfer hawala funds and who knows the amount may have had been used for funding terrorist outfits. So we feel that we should take this effort by RBI in a positive spirit and stop sulkig that PayPal sucks for Indians as it also has to comply with the guidelines of the regulators of the nations.