A market for Non Deliverable Forward in Indian Rupee has often been made as a case for India to open up its currency futures market.
But what is an NDF? This non-technical note from New York Fed is a good one explaining the basics and mechanics.
In a forward market, the settlement happens in the currency for which we have bought a contract. However, in an NDF what happens is that you buy a contract taking an exposure to a currency but settle in another currency mostly US Dollar.
NDF market exists as few emerging markets have capital controls and do not have a currency futures market. But emerging market currency risk is crucial especially for multinationals who operate in emerging markets. So, we have an alternative- NDF market where one can structure forward contracts on emerging market currency but settle it on another currency.