I haven't seen a lot of Indian films targeted at children to begin with but I would say the best that I have seen would have to be Makdee. That there was a great film!
I think Bollywood misleads us when it comes to this genre. They throw in some child actors and childish dialogue and portray a film to be all child appealing but you spend your money and you see a heroine gyrating in a yellow swimsuit (Lazy Lamhe anyone!)
I really hope in the near future directors will come up with more intelligent and orignal screenplays to fill the void in the Children's film genre of Indian cinema.
Bollywood was never very keen on making children's movies.Even in movies which is promoted as children's flicks,they find it necessary to include silly romances and sexy songs(read Mr.India,Koi mil gaya,TPTM...). So among the few options we have, I think chota chetan is the best children's movie. My favourite bollywood's children's movies are Chota chetan and Makdee.But I liked the performances of the following child actors in their respective films. 1) Darsheel safary in TZP 2)jughal Hansraj,Urmila and the little girl(I don't know her name)in Masoom 3)All the kids in Anjali 4)Baby Shalini in all her films 5)keerthana in Kannathil Muthamittal
The best children's movies are made in Hollywood. E.T. the Extra-Terrestrial, The Lion King,Home Alone series(especially 1 and 2),Harry Potter movies,Baby's Day out, etc. etc.
Admit it or not, best children films in india are not made in bollywood. Tare Zameen par is not a childrens' film though its theme involved a child. I do remember some very good childrens' film in other indian languages. Anjali was good but again not made in bollywood. One film I find worth mentioning is "Goopi Gayen Bagha Bayen" by great master Satyajit Ray. Though it is in bengali and the subtitled version makes it loose its impact to some extent, still watch it and you will know.