The obsession with English

and, how that is a show-stopper for internet penetration in India

Irrespective of what data you believe, only a minuscule percentage (less than 2%) of the population in India is "connected". Even among the folks who are online, very few use the internet for doing anything other than checking email sporadically. This does not count the folks who have to log-in at work in furtherance of their company's business. I seriously believe this has to do with the lack of availability of compelling, appropriate local content. As we think of bringing internet to the villages, we need to figure about what they are going to use the internet for and what kind of education, information and entertainment can be served up to them in local language. This is as relevant for the villages as a vast majority of folks living in our towns and cities.
While the accent of all the policy directives seems to be on the "hardware"- connect more villages, make more low cost computers available etc, a strong push on local language content availability which educates, informs and entertains (a la local language television) is needed to ensure true internet penetration and usage among a much larger percentage of the population.