We did finally manage to get our baby back with us. It was no simple task so here is a quick list of steps we had to take to get the necessary authorization.
1) Apply to the State Mantralaya - Home affairs department for an exit permit for the baby. They need copies of the parents passports,OCIs,marriage cert,departure ticket,etc.
2) If all goes well and with regular followup you can get the letter from the Mantralaya in 5-7 days. You can get this letter collected from the Mantralaya as long as the person has an authority letter from you.
3) The letter is addressed to the Dept Commissioner of Police of the area where the baby was born. It states the State Govt are ok with the child leaving the country and transfers responsibility to the police to conduct checks and collect visa fees (40USD)
4) Apply to the local FRO/Dpty Commissioner of Police for endorsing the UK passport of the child with the exit clearance. We had a tough time in Aurangabad cos this was their first experience of a baby needing just an exit clearance. We managed to get this done within 3 days (1 being Christmas day).
5) In the end, you should have a exit clearance stamp on the passport (with references to the Mantralaya letter) allowing you to leave the country on or before your confirmed departure date.
6) At the airport immigration, the officer checked the stamps and asked if we were also given a NOC letter. No such letter was given to us but he said it is ok.
!!WHEW!!