My firm specializes in custom Web based applications, so I know a thing or two on what it takes to build advanced Web based solutions. I have seen the final results, when outsourcing advanced and custom web application work to India, and they are not good. Too often, the business logic is not there, the intelligence in the application is missing key components and the usability is simply wrong. Why does this happen? Communication and culture is key in building these advanced Web solutions. One loses a lot of that when going overseas, of course this is my opinion. :)
Google has said that India will be "one of our [Google's] larger operations". I do not know if this will be a good or bad move. I know the web application development cycle, I have never worked in the technical department at a search engine company. I wish them luck!
Forum discussion at WebmasterWorld.