American living in Jaipur (India) here, and I second II Gyan II’s responses. Public displays of affection between males and females are frowned upon (non-homosexual physical contact—hand-holding, walking “arms around”—between people of the same sex is perfectly acceptable, however).
Premarital affairs seem to be surreptitiously sought by many young people but heavily disapproved by parents. Very Westernized urban sophisticates tend to have a more Westernized “it’s your own business if you want to have sex” attitude, but that’s not the popular consensus. The persistence of arranged marriage, in which the parents are very much involved in the selection of a spouse, means that the mores of the parents’ generation tend to be more influential than in more individualistic Western ideas of romance and matrimony.
As for Bollywood, going to the movies is still very much a family event for Indians, and most parents don’t like to see “adult” scenes in films on that account. There was widespread grumbling about the recent release Murder (which would probably be considered mildly R-rated in the US) because of its sexy scenes (as well as its adultery-themed plot). (Of course, Murder has been a big hit despite (or because of) the grumbling, so you can see that India, like everywhere else, is sort of ambiguous in its response to sex in entertainment.)
Modesty in dress is more conservatively defined here than in the West. It’s not really considered appropriate for women to bare their legs in shorts or miniskirts (or at least, it’s usually done only by very hip urbanites and characters in movies). Tight and skimpy clothing in general is seen as rather improper. Many Muslims, of course, are even more restrictive, with women wearing either the headscarf or the full-body burqa.
I have no idea what attitude people take toward sex, or how much they know about it, once they’re married and socially permitted to have it. I’d tend to agree with EC’s assessment that cultural prudishness is rather pervasive, but it probably doesn’t stop many people from learning to enjoy their private sex lives.
On the flip side, there are many ways in which nudity and physical intimacy are treated much more casually here than in the West. Same-sex strangers will strip down with you in a changing room with nary a blink of an eyelash. Same-sex acquaintances are much more free about touching one another, as I mentioned above. There are no forbidden zones except the genital organs themselves for a (same-sex) masseur or masseuse when giving a massage (something that prudish Westerners like me wish we’d known in advance! :)). Religious ascetics whose principles require ritual nudity, like Digamber Jain monks and some Hindu sadhus, walk around (not that often, though) bare to the air and nobody stares, and their fully-frontally-nude photographs are respectfully displayed in the offices of religious institutions and the homes of devotees.