In major urban centres, there are many restaurants and fast food joints that follow a homogenized "global" etiquette. However, in mainland India, there still exists a uniquely Indian etiquette. Here is more on this etiquette.
While eating at any restaurant, basic etiquette involves leaving a good tip for efficient service and being courteous to one's host. As far as Indian restaurants are concerned, many of them are not too formal. However, there is a set of basic rules that must be followed everywhere.
Rule No. 1 is, "Do not ask for beef or pork." You must keep in mind that the majority of Indians are either Hindus or Muslims. In the Hindu religion, the cow is considered to be sacred and cannot be eaten. Similarly, Muslims consider the pig to be filthy and abstain from it. Most Indian restaurants do not serve either beef or pork. Ask for these meats only if you see them listed on the menu. Also, note that many Indian restaurants serve only vegetarian fare. These restaurants generally have "vegetarian" displayed prominently on their signage. Do not offend the owners by asking for meat.
One huge faux pas that you could make when dining at an Indian restaurant would be to offer someone else your jutha. "Jutha" is a Hindi word referring to "food which has come in contact with your mouth, saliva, or plate." It is considered very rude and unhygienic to offer someone your jutha unless you are close friends or family.
Indian food is generally meant to be eaten with the hand. Many Indian foods such as naan and roti (both being types of flat bread) have to be eaten with the fingers. The proper method would be to break the bread and soak it in vegetable curry before eating it.
Why do Indians eat without cutlery? This is because eating is a very sensual activity. Hence, as many of the senses as possible -- taste, smell, sight, and touch -- must be involved. However, if you are not comfortable eating with your fingers, you can always pick up a fork and a spoon. If you do decide to use your hands, remember to use only your right hand for eating. The left hand should be used to serve food or to pass a dish to someone else. Left-handed people can reverse this arrangement. The basic idea is that one hand goes to your mouth while the other manages the food.
Many Indian restaurants do not serve alcohol. The restaurants that do serve alcohol, do not usually offer too much of a range. Indians do not have a wine and dine culture. So it would be best to go dry and try something like a mango lassi as a refreshing alternative.
As far as restaurant etiquette goes, paying the bill is always an issue. In India, when a person invites you to a restaurant, it generally means that (s)he is the host and that (s)he is going to pay the bill. Even when Indian companions want you to pay the bill, they will say no at least once when you offer to do so,. Be doubly sure about whether or not your Indian host wants to share the bill.
Apart from these aspects, the basic rules of etiquette that should be followed at regular restaurants hold good. Hope you enjoy your meal at the Indian restaurant.