Dude, £400 a month is a lavish budget - 34,000 rupees a month gives you plenty to work with. Take trains in 2nd class and sleep in hotels that cost you less than Rs.500 a night (2-3 stars) and you're all set. Food is ridiculously cheap and ridiculously good (I speak as a person of Indian origin) even if you eat in restaurants rather than buy from street vendors (but I would definitely recommend doing the latter - much tastier, more authentic).
Just make sure you don't end up paying more than you should for taxis or other road transport. People will be waiting to rip you off especially if you're white. General rules of thumb:
- Whenever possible, take yellow-and-black vehicles (taxis, auto-rickshaws etc), and insist that the driver turn the meter on.
- If yellow-and-black vehicles are not available, a car should cost you around Rs.1000 when you hire it for the whole day.
Be careful of drinking water - restarants are fine, but public taps, wells, pumps, streams etc may not be safe. Bottled water isn't expensive. Don't listen to scare stories about eating the food and fruits and whatnot - if you want to travel in a cocoon, India is the wrong place to be. If you're not young or if you suspect your immune system is not strong anough, pop some Vitamin C pills and get on with it. You'll be fine.