I've been trading forex for quite some time now, but fxgood, as you know this will never be settled it seems, untill we hear something from the horse's mouth directly. i.e the RBI.
I think the ambiguous status is more inclined towards the 'it is legal' then towards 'it is illegal'.
come to think of it.
One of the major forex broker in India goes on the record and gives a press release about how their org is going to achieve 200 crores of turnover per day in India, through appointing IBs.
This guys have offices in India, and almost every other website carries their banner ads.
If it were illegal is it possible for them to operate like this.
To top it we don't have a recorded case, as of yet about RBI penalizing someone for Forex Trading.
As a developing economy and as one of the open countries today, i am sure RBI would not be putting people behind bars just because they traded Forex with a UK broker and not with CME broker.
My CA friend actually told me that their association, infact conducted a one day workshop on understanding Forex trading and how to account the profits.
So as of now, whether it is legal or illegal, but looks like you are not going to be penalized for doing it, which in my books is legal