Hi fingerbell
In late 1999 I flew to Delhi, took trains to the south and, after a couple of weeks standard backpacker travel, bought a local singlespeed MTB-lookalike in Kollam for aroung 40GBP, Kerala. I rode this for the next weeks over the Ghats and around Tamil Nadu. In Pondicherry I sold the bike for about half what I paid for it, making no attempt to haggle for a better price.
I loved cycling in India. Once you get used to the rules of the road and learn to hit the dirt verge when a bigger vehicle approaches, it is really not so intimidating. There is little of the 'road rage' and general aggression that you get in the West, especially the UK. The coastal main road in Kerala was busy and I was glad to leave it. The road over the Ghats was quiet and in TN I planned a route that avoided national highways. Outside cites like Madurai, there was little traffic. Had no tent but took a bivvy bag which was used outside once, in the Ghats (it made a good bed covering in grubbier hotels). Most places are too crowded for wild camping; it goes dark at 6pm and rooms are cheap.
Apart from the general pleasures of cycling, having a bike gives a number of pluses over general 'backpacker' travel in India:
i) freedom from accommodation touts on arrival in tourist cities and ease of riding around to find the best rooms for your needs. Indian cities can be quite spread out
ii) no need to haggle with auto-drivers, struggle with bus times etc when sightseeing
iii) feeling cool during the day as the wind blows the sweat away
If i did this trip now I'd probably bring a bike from home but only cos I now have so many. At the time, buying a local bike proved a good decision: at £40, it felt completely expendable and, hence, worry free. If it got crashed, trashed or nicked, just go to the next town and buy another. It came with racks and mudguards (brought bike bags with me). Brakes were flimsy and probably would have been in poor shape at the end of a longer trip. Lack of gears was not a handicap: even in the Ghats grades are not steep.
Roads will certainly have got busier in the last 10 years, but I doubt there'll be that much difference outside the orbit of bigger cities. Go for it and enjoy!
Hope this helps
Tom