Pillow cases come in very few sizes, so you may need to make some adjustments to make it fit. When cutting neck and arm holes into the pillow case, hold the pillow case up to the child and draw cutting lines with a pencil. When you cut the neck and arm holes, remember that you can always cut more away but you can't put fabric back. Therefore, make your initial cuts smaller than you think they need to be, and then make the holes bigger if you need to.
Adding fringe to the arm holes and bottom hem will give the Indian dress an authentic look. To make the fringe, use a pencil and ruler or yardstick to draw a line parallel to the edge you want to fringe. For arm holes, draw the line about 2 inches from the edge, and for the bottom hem, draw the line about 4 inches from the edge. Use scissors to make cuts perpendicular to the line you just drew. Cut from the edge of the pillowcase to the pencil line, and make your cuts about every 1/4 inch.
To add color to the Indian dress, glue or sew ribbons to the pillow case. Remnant ribbons are often sold in bags at a deep discount at fabric stores. When bought this way, you'll get get a large variety of ribbons inexpensively. You can apply the ribbons to the pillow case with a hot glue gun, or if you want the dress to be washable, you can sew them on with a needle and thread with a simple running stitch. You can sew the ribbons in horizontal stripes around the dress or make trident patterns.
To give the pillow case a nice shape and to keep it from swamping your child, make a belt to tie around your child's waist. Braid rope, ribbon, or several lengths of yarn together and knot the two ends. The three strands of the braid can be the same color, or you can use different colors for a brighter look.