Why does the government want more of the rupee trading to shift from the NDF market to the local rupee market? What is wrong with the NDF market?

NDF (non-deliverable forward) market is like exporting Indian currency trading to other countries and there is no need to allow that when India can get a share of that trade. Also, NDF trading cannot be regulated by the RBI and hence the volatility created in such markets is outside the control of the RBI and the government of India. Therefore, India is looking to strengthen its regulatory grip on rupee trading as blowouts in offshore prices tend to disrupt exchange rates for the currency. The NDF market is a tool for hedging and is quite popular with investors who want to bet on currency without taking deliveries. One way would be to let Indian banks participate in the NDF markets.