I think this is a smart strategy. Keep in mind, India gained independence in 1947--there are people alive (although not many) who remember India being a colony. Indians are very aware of the post-colonial activities of Western powers in Africa and South America, and have good reasons to be worried about cultural and economic imperialism. By maintaining tight control over what foreign businesses are allowed to operate in India, they can limit what power foreign nations have in India, keeping wealth and influence firmly within their borders.
Americans like to think that we're the benevolent leaders of the free world and that we've always been a great help to people in other countries, but this is not the case. From assassinations, funding coups, embargoes, and direct invasions, the US has not always been a positive influence on the third world. India is right to be suspicious of American businesses in India.
But what other motivations are there for India to ban things? Is there general censorship or something?