Hi there,
My wife and I recently returned from India. I'm surprised there's nothing in the "cheap accomodation" forum on India -- although, of course, almost all accomodation in India is cheap by Western standards. The trick is to pick out hotels that are clean and nice, which often do not cost more than the not-so-nice ones.
1. Bombay. Don't go here, if you can avoid it. It's hot, polluted, there's nothing much to see but squalor, and hotels are very expensive. We had the privelege of staying with relatives, which made it worthwhile -- but for the average tourist, Bombay can be a real drag.
2. Goa. We stayed in the town of Mapusa, which is away from the beaches that Goa is famous for. This turned out to be a blessing in disguise, for several reasons. First, we stayed in the Hotel Satyaheera, which, at Rs 250 per night (about $7) was the bestvalue for our money anywhere we stayed in India. The hotel is just across from the market square, a block away from the bus station. On Fridays there's a very nice market, in which you can buy lots of nice stuff if you know how to bargain (generally, don't ever pay more than 1/3 of the asking price, never hesitate to try 1/10 of the asking price, and look around to see how much similar objects are being sold for. Take about 1/4 of the average price at several vendors, find the one you like best, and insist on paying the price you want. If the vendor laughs at you or looks amazed, ignore him and walk away. Most likely he'll come running after you, telling you he'll sell it to you for only a little more than you offered. Refuse, and say it's your price or nothing -- or, better yet, tell him you just lowered the amount you're willing to pay. Walk away, and he'll finally give in and say "your price". If he doesn't, you haven't lost anything -- you now have a lower limit that you can use to guide your bargaining at another vendor -- or even the same one.) Back to the Satyaheera. The rooms were reasonably clean (well ok, there where a few roaches in the bathroom, but insect spray is readily available in pharmacies) and the service very good (by Indian standards). One drawback is the Indian-style toilet (hole in the floor, flushable), which is a little aggravating for some westerners.
The best thing about Mapusa is its accesibility to near-deserted beaches. Take a rickshaw to Chapora Fort (Rs 70, or $2) or the bus (Rs 3 or 4), walk around it to the small village on the north-east side, and hire a boat to take you across the river. You'll find a long, almost empty beach, with another fishing village at the other end. Here you won't be bothered by hawkers, as Westerners often are at the more popular beaches (ie, the ones with names listed in the guidebooks, such as Vagator, just south of Chapora Fort). Also, the beach is *very* nice. Ask the boatman about ther beaches farther north of this one -- he'll take you there for a few dozen rupees.
3. Mt. Abu. This is a vacation spot north of Ahmadabad, known for its intricately carved Jain temples (the Delwara Temples). These are truly amazing: the marble carving is stunning and the number of carvings (all over the walls and ceilings of the temples) is immense. We stayed at the Palace Hotel, which was once a Maharaja's summer palace, for about Rs 1100 ($35) per night. The rooms are very nice, each with its own balconey, sitting room, and very nice bathroom. If you take the bus from Ahmadabad to Mt. Abu, you'll get there at 4:00 in the moring, so be sure to call the hotel first to make sure someone will be there to open the door There should be jeeps waiting at the bus stop (the Mt Abu taxis are all jeeps) to take you up the hill to the hotel for Rs 40 or so. The restaurant at the hotel is a rip-off by Indian standards.
4. Udaipur. This is one of the nicest cities in India. It's more relaxed than Jaipur, and the palaces on the water are beautiful. It's expensive to stay in the hotels in the palaces, but you can get good, cheap accomodation in the hotels around the palace complex. Most of the hotels that charge around Rs 400-500 looked OK from the outside. The manager of the Raj Niwas is very friendly, explaining what to see and so on.
5. Jaipur. The Arya Niwas is a nice hotel, and a bargain at Rs 500 or so ($16). The rooms are clean, have Western toilets, and hot water in winter. There's an efficient and cheap laundry service that will clean your clothes overnight for Rs 40 or 50 or more, depending on how much you have washed. The cafeteria serves the blandest Indian food in all of India, which might be a welcome relief if you're sick of the solid fire they usually serve everywhere else.
6. Agra. There are some pretty expensive hotels in Agra, and my guess is that they aren't worth the money. You can get service that is almost as good as at the best Western hotels for Rs 950 ($29) per night, including tax, at the Hotel Atithi. The rooms are clean, have working color TV (although what you'd want that for when you can gaze at the Taj Mahal -- truly the most beautiful building in the world -- for a few hours, I don't know), a minibar without (as I recall) any alcohol (but with reasonably priced apple juice), supposedly a view of the Taj from the roof, and very efficient and helpful staff.
Lastly, a few words on how to avoid being hassled by hawkers, taxi drivers, etc -- many of whom are desperate enough for cash to latch on to Western tourists and not let go until they've gotten away with selling you as much as they can for as much of a profit as they can get away with. They'll try to sell you sightseeing trips,knickknacks, and probably everything else under the sun. The best defense would be to confuse these aggravating pests by blending in with the Indian population. If this were possible, it would work (my wife, who is Indian and looks it, was never hassled until it became apparent that she was with me), but unfortunately most Westerners will never find a way to blend in. There are a few things you can do, though. Most importantly, don't gawk, or look lost, or act like you're enjoying yourself. Develop a snarl, with your jaw set and your face the most angry frown you can contort it into. Look far away, straight ahead of you, walk fast and upright and act as if you now exactly where you're going, even if you're completely lost. If any unwanted solicitor of your business looks as if he's going to accost you, don't bother looking at him; just dismissively wave your hand at him and continue walking. This trick is, of course, difficult to pull off, since most of the time you *will* be pretty amazed at everything you see, and gawking is exactly what you feel like doing. And of course sometimes (most of the time, if you're a hardy traveller), you'll be really enjoying yourself in spite of the pestilent hawkers, so scowling will be the last thing you want to do. But it's worth it in certain situations, such as right when you step off the train (in big cities the platform is always full of taxi drivers waiting to descend upon Western tourists; these should generally be avoided in favor of a driver out in the street, who won't have deliberately waited at the station just in order to rip off a Westerner) or right outside the airport, or when you're walking through a market place and you don't want to buy anything. It's also hard to do if you've brought (or accumulated) too much baggage: you need a free hand if you want to wave it dismissively.
Anyway, in conclusion, India has a lot of bargains. Getting there is the most expensive part; once you're there, if you lower your standards (of cleanliness, punctuality, etc) just a little, you'll really enjoy what it has to offer. Food, accomodation, and art (wood carvings, paintings, marble mosaics, etc) are very, very cheap. And of course some of the sights are beautiful and unlike anything anywhere in the world.
If anyone reading this has any questions, I'd be happy to e-mail an answer -- and if anyone who has been to India has further suggestions for places to go and where to stay, I'd like to hear about them for my own future trips to India.