Scroggs has summed it up pretty well !
The indian aviation industry still needs some channelising and systematic planning. The DGCA FID are trying their best to provide it.
Also there have been a few major incidents involving expat captains which has caused a lot of embarrassment to the companies which hired them and in one case a company has been sold.
60 to 70% of Kingfisher is ex Air Force all doing well with little or no problems. One of the main reasons Indian F/Os are taken is they are much cheaper than expats. Also an Indian F/O is more used to the Indian environment which will take some getting used to for an expat.
For the foreseeable future I doubt if any policy change will happen.