There indeed was a major naval power in India around the year 1000 AD. The Chola Empire controlled southern India, Sri Lanka, the Maldives, and land in what is now Indonesia, Singapore, and Malaysia.

To more directly answer your question, the Chola Navy was quite important for both military and trade. By the year 1000, the Chola Navy was a blue water navy, allowing the Empire to control the Bay of Bengal and the Andaman Sea.

I'm not an expert, however I hope this helped, and perhaps someone formally educated in this area could give more serious detail and blow away my paltry outline of an answer.

I'm no expert, but I do live in India and I am an Indian, and as far as I can tell, there wasn't really much of a need for the Indians to build up any large navies, and by the time they should have, it was too late because the European countries had begun to invade. "India" had always been a bunch of seperate cultures and states warring in between themselves, much like China and Europe. However, unlike China and Europe, India was at the very center of it's continent, with land stretching endlessly (or so it seemed) on both sides. The nations had always been protected by it's Mountains to the north and the Indus river and it's tributaries to the North-West. This led to a relative isolation from invasion. As such, you really only had to be as good as the best Indian country, while Europe and China were competing with the world at large.

In the end, I think it was a matter of placement and the way wars were waged. India didn't have any major sea battles, since everyone the kingdoms had to compete with could be reached by land. As such, ships were never a priority.