£20 does seem a bit optimistic
but if you can build a basic mobile phone, with rechargeable battery screen and keyboard, and sell it (presumably with some profit) in the UK for under £30 (as seen at http://www.reghardware.com/2010/12/03/ten_essential_cheap_voice_phones/), then why should you think that it was impossible. Also look at the 7" Android epad and apad devices that are selling on ebay presumably at a profit to the supply chain for less than £80 at the moment.
I know that the phone companies probably make a bit of a loss on the phones, hoping to recoup it from the phone charges, but I cannot believe they subsidise it by a significant amount.
I doubt that the Indian government is going to insist on a device capable of running Windows 7 with 3D high performance graphics, a multi-megapixel display and a terabyte hard disk, and they will probably drive the profit element down as far as possible. If they are assembled in India, they may also be able to fudge or hide the labour costs, in the same way that they subsidise the railways.
What do you actually need for basic web surfing, email and a bit of text processing? Probably a <500MHz ARM, 256MB memory, 2GB backing store, a basic keyboard and mouse (assuming you are not going to use a touch screen) and a display of 640x480 or so. If the web surfing is intended to be government information (voting, census, tax etc) then they can control the web content and thus the requirements of the display.
So impossible at £30, maybe not.