The NBA objected to the large number (200,000) of specimens that were to have been sent for identification, citing biopiracy concerns, while claiming that there is no rule against exporting "a few specimens." They instead recommended that researchers send photographs instead [see: Jayaraman, K. S., 2008. Entomologists stifled by Indian bureaucracy. Nature, 457: 7 (6 Mar 2008; doi:10.1038/452007a)]
One valid concern the authorities have is that Indian taxonomic expertise needs to be built up and by exporting so many specimens, foreign researchers would benefit at the cost of locals. The 'marketing' of biodiversity as a potential economic resource has led many countries with rich biodiversity but comparatively less technical expertise to impose protectionist laws aimed at keeping wealth within their borders. Personally I think this protectionism is misguided, for the following reasons:
Taxonomic expertise will always be limited because it is a small field. There will always be the necessity to send specimens to external institutions because no single country will have enough experts to identify everything. Some commentators say that more local students should be sent to study in Western institutions and return to their home countries to work on the local biodiversity - but to what effect if once they return, the lines of communication between them and the outside world are severed? Their work will then become blinkeredly local and have no effect or influence.
The need to study biodiversity and document it cannot wait for the slow training of new taxonomists and systematists (especially in the face of the field's waning popularity), because of the ongoing destruction of habitats. This leads to the perverse consequence of legitimate scientific research being hampered (because in science, rules must be obeyed) while illegitimate habitat destruction proceeds without obstruction (because illegal clearing and burning is illegal anyway).
The chances of wholesale biopiracy are slim: taxonomy is not the most economically profitable of scientific endeavours. Common courtesy now also requires that local host institutions from the countries which supply the research materials be provided with a complete set of specimens collected. Presumably in this case too the Indian researchers will have their own set of insects. Bioprospecting success stories seem to be too few to warrant such paranoia - perhaps I might be wrong about this and if so would hope to hear more about them.
It's simply not cricket - being so possessive betrays a mindset of colonial victimization. Being ungenerous now won't realistically make up for a past history of colonial oppression.
Ultimately, this will only hurt the Indian researchers and Indian science. The bureaucrats seem to have forgotten that animals and plants don't obey human borders. Perhaps they wish to prosecute animals which migrate from the country for treason? I like to draw an analogy with literature. If one is possessive and protectionistic about one's country's literature, what is the result? One would prevent the translation of one's literary works into other languages because other cultures might 'steal ideas' and plot devices. Foreigners who came to learn the country's language and who bought the books would be treated with suspicion. Ultimately the literary scene in the country would die out from inbreeding depression.
We don't hear India (or Bangladesh for that matter) complaining about how Westerners read Tagore and adopt his ideas, if anything they are justifiably proud of his literary influence on the world at large. Why can't the same be said of India's biodiversity?