Calling ancient and medieval Indian architecture "progressive" for its inclusion of nudity is not the best way to frame it. There were many ancient and medieval cultures around the world where women were topless, so ancient India doesn't really stand out in that regard. And the fact that nudity or partial nudity was seen as normal means that it wouldn't have been understood as "progressive" to depict human bodies this way, the way that a #FreetheNipple photoshoot would be construed today.

First, I'll talk about nudity in other architectural styles. Nudity in art was common in areas influenced by Hinduism and by the wider culture of the Indian subcontinent. One of the most famous examples of nudity in architecture is the 10th century temple of Banteay Srei in Cambodia. The temple was originally called Tribhuvanamaheśvara, but its modern name, which translates to "citadel of the women", is a reference to the many depictions of devatas, or demi-goddesses, in the architecture. There are also many apsaras, which are a very common part of Hindu and Buddhist iconography, and take the form of beautiful half-naked women.

While these topless women are divine beings, not depictions of real women, their clothing is very similar to that worn by real people in art of the period. For example, at the 9th century Buddhist temple of Borobudur in Java, both queens and commoners are portrayed topless. It's not that surprising that in warm climates it would have been the norm for women to have their breasts exposed. Given how important figurative art is in the history of Hindu and Buddhist architecture, it makes sense that when they portray the human figure, they do so according to both current cultural norms of dress and to iconographic histories (which were in turn influenced by ancient dress norms). The celebration of sexuality was also an important part of Hinduism at the time, which is why you get erotic sculptures in temples like those in Vishvantha Temple. (These erotic sculptures may have been connected to tantric practices at the time, which emphasized sex more than other types of Hinduism.)

You also get depictions of nudity in architecture beyond Hindu and Buddhist countries. Greek architecture frequently includes depictions of the human form that are sometimes nude, such as the nude Hercules at the Temple of Zeus. The Romans imitated this, sometimes in sculpture but also in mosaic art. It's been speculated that the conquests of Alexander the Great led to an increase in figural representations in Indian art due to similar Hellenistic influence.

Nude depictions of people in architecture go even further back than that. A nude worshiper offers libations to the goddess Inanna in a relief beside a temple door in 2500 BC; naked men herd cattle on a mural in an Egyptian acropolois from between 2500 and 2300 BC; palace women were depicted topless in the Minoan temple of Knossos from 1800 BC; a musician is topless in the tomb of Nakht from 1400 BC.

This huge variety of ancient nude portrayals hints at the wide range of meanings that nudity can hold in different cultures. In tropical parts of the Indian subcontinent and Southeast Asia, women going around with exposed breasts was practical. In ancient Greece and Rome, the nude male figure was romanticized and intellectualized. Mesopotamian priests were sometimes ritually nude. In some Ancient Egyptian art, nudity is portrayed in architecture to show the vulnerability of captives, whereas at other times exposed breasts represent the everyday fashions of the elite or of their slaves. We can't assume that showing breasts or genitalia in architecture is a sign of "progressivism" since these body parts' significance has been socially constructed in many different ways throughout history.

While Abrahamaic traditions brought with them the idea that nudity must be restricted in order to please God, that did not stop depictions of nudity from appearing in architecture of people who followed these faiths. Nudity has continued to form a part of architecture in the medieval and modern periods in many different places across the world. Medieval Europe, particularly Ireland, brought us the Sheela na Gig, grotesque figurines flashing their vulvas in the ceilings and walls of castles and cathedrals. Other times, nudity served to convey a specific story detail in Christian narrative art in churches throughout Christendom, such as in stained glass windows and murals depicting Adam and Eve. Folkloric and mythological themes include nudity in Christian churches too, such as this mermaid on a church pew from Cornwall. You also see nude mermaids incorporated into coats of arms on buildings in the late medieval and early modern periods.

The perfection of the human form was also part of the mindset of Renaissance artists who revived ancient Greek and Roman styles of architecture. Michelangelo's Creation of Adam from the ceiling of the Sistine Chapel is a great example of this. You also get a lot of nude depictions of angels in the Renaissance. This built in part on classical motifs as well, with nudity being associated with youth such as in depictions of Cupid. Indeed, in many ancient cultures it was the norm for children to be nude until puberty, so the association with youthfulness would have been a natural one.

Today there are still cultures where nudity is considered normal. Women of the Zo'é tribe in Brazil go completely nude except for their lip plugs, while men sometimes wear loincloths. Again, it's not really "progressive" of them to do this, because they have not existed in a cultural context in which "conservative" moral weight was attached to the idea of covering up one's breasts or genitals. As to why attitudes towards nudity changed in Indian history, hopefully someone else can come along and answer that. But I hope my answer has demonstrated that depictions of nudity in ancient Indian architecture are far from an outlier in world history.

/u/Kelpie-Cat gave an answer that is interesting and well thought out. I agree with much of it but there are also elements where I disagree and I think it would be useful to provide a different perspective. For context my main research is not on art history but I have written about depictions of the female form in South Asia and touched on the question of nudity (see for example Bracey, R. (2018) ‘Is it appropriate to ask a celestial lady’s age?’ in Rienjang, W. Stewart, P. (eds.) Problems of Chronology in Gandharan Art, 135-48). As that paper indicates my expertise is primarily in the early centuries AD where-as Kelpie-Cat’s answer focuses mostly on the early medieval period. And that is important, there is never a single answer to this sort of question. South Asia is a huge place and people have treated the human form, and the degree to which you reveal it, in a wide variety of ways.

To further illustrate that point one of the features of art I discuss, albeit briefly, in that article is the difference in ‘nudity’ between places. In the early centuries AD a visitor to a Buddhist site in Uttar Pradesh or Maharashtra, such as Bharhut, Sanchi, or Mathura, would have found it surrounded by decorative images of semi-divine female figures, sometimes called Yakshi. To us they appear to be ‘naked’ women, often quite frankly depicted including genitals. This is relatively unusual in South Asian art where the breasts are often clearly depicted but the genitals (for both men and women) are more often obscured. Now, here I must take issue with Kelpie-Cat’s answer. It is naïve to extrapolate from these figures to assume that actual women dressed like this (especially royalty who would be most likely to be depicted using artistic conventions) and in this specific case it is completely wrong. Firstly, the figures are not technically ‘nude’ but rather wearing a transparent garment (it is artistically transparent, it probably wasn’t actually transparent in real life). Secondly, depictions survive of female donors and they wear a heavy dress falling from the shoulder to the ankles which completely obscures all of the garments worn by the Yakshi figures. In other words the Yakshi is depicted using an artistic convention in what amounts to underwear.

Even then it is still more complex because we do not know how these figures were painted, or if they were in fact painted. One type of this female figure, known as the Salabhanjika (it just means woman holding a Sala tree), was subsequently adopted in wooden sculptures in Nepal. There is a beautifully illustrated and well written book by Slusser discussing these figures (Slusser M.S. 2010. The Antiquity of Nepalese Wood Carving. Seattle: University of Washington Press) and many of the figures illustrated are painted. The paint has an immediate transformative effect, rendering the figure ‘clothed’ to the viewer. So, we should always be careful to distinguish between how we see art in the isolating context of a museum and how it might have been seen by an ancient viewer before the monochrome ravages of time and within its original context.

Now, returning to my point about how South Asia has not single mode of depiction. If our visitor to one of these Buddhist sites had turned north and traveled to another Buddhist site at Taxila, or in Gandhara, or the Swat valley (all in modern Pakistan), to see a contemporary Buddhist site, they would have encountered a very different set of figures. Male figures were almost entirely absent in the south, but they are not uncommon in the north, and in the north they are often nude. By contrast female figures depicted in the same poses at these northern sites are almost always shown with long flowing dresses, clearly clothed. And my example is not hypothetical, people did move between these sites, artists at all of them were familiar with the work of the other sites, and small portable pieces even traveled. Yet two groups of contemporary people chose to take entirely different approaches to how much of the human form they revealed.

Lastly I want to agree with Kelpie-Cat’s general point that it is wrong to project a notion that this was ‘progressive’. Art historians have spent a lot of effort and time trying to grapple with what this apparent nudity might mean and I don’t know of a really good discussion (for some random examples see Fischer, K. (1985) ‘How were love scenes on Gandharan Stūpas understood by contemporary worshippers?’ South Asian Art 1983, 629-39 or Dehejia, V. (2009) The Body Adorned, Sacred and Profane in Indian Art). I have in the past suggested the extreme nudity at some Buddhist sites might reflect a sexualization of the female form which shows the deep discomfort and tensions in contemporary society over the power and authority held by nuns at the time, though there are many other ways of thinking about this and probably the way people thought about it varied as much as the way bodies were depicted.