Paypal has been reversing payments made to Indians since February 1, 2010 . Though the email they send says
Hello ***,

Your payment of xx.xx has been sent back to the sender of the payment.

We reversed this payment because we have stopped allowing personal payments to be sent to or from India.

If this was a payment for a purchase of goods or services, and not a personal payment, then you may contact the buyer and have him or her resend the payment as follows: (a) click the Send Money tab, (b) select “Goods,” and (c) provide a shipping address.

If this payment was a personal payment such as a gift, then we have requested that the sender find another payment method until we restore personal payments to and from India.

We are trying to resolve this issue as quickly as possible and we’re sorry for any inconvenience.

Thank you,
PayPal

They claim that only personal payments are affected, but payments sent by Paypal Masspay to verified business and premier accounts are also getting reversed. Paypal Masspay is used by most advertising and affiliate networks to make payments to their publishers

Some of the networks whose Masspay payments are being reversed are:
Infolinks
Chitika
RentaCoder
Freelancer / GetaFreelancer
Reviewme
TLA
Adsdaq
Adengage
Inpostlinks (formerly PayperPost)
Netline/Revresponse
Forbes publisher

The worst affected are freelancers and sellers of digital products who receive small payments from a number of customers, who will find it difficult to get their money back.

Bank transfer requests have not been completed even after 10 days, and could take up to 30 days. New transfer requests have status as pending. If your balance is negative after the transfer request, the transfer will be canceled.