My son is Cherokee & uses this term & I was concerned if that is a proper term. I thought it originated because the US government historically gave land & such to tribes, then took it back when they found oil or something of value on the land.
I am going to explain this as the grandson of Crow and Onondaga people.
This is offensive. We do not appreciate this usage. I don't care where it comes from.
It has been used pejoratively since at least when I was exposed to it in the 60s. We used to respond to it as "...you mean white-man giver." as it was always the white government that took our lands...
I've never heard this phrase before (I don't live in the US), so have no instinct on the political correctness of its everyday usage. When the previous commenter mentioned Carlyle I decided to do a google. (I came across Thomas Carlyle when cotranslating some John Stuart Mill texts into German and he (Carlyle) is certainly not 'politically correct'.)
In any case there's an entry at Wikipedia.
"Indian giver" is an American expression, used to describe a person who gives a "gift" and later wants it back, or who expects something of equivalent worth in return for the item.
Overall the article seems to suggest that it could cause offence. David Wilton claims the phrase is based on a misunderstanding where the native Americans thought they were trading, while the Europeans thought the native Americans were giving them a present. Thus -- and this is my subjective understanding -- the meaning 'to give a present and expect something in exchange' would be the European perspective on what happened.
Wiki also mentions that the meaning may have changed over time.
The phrase was first noted in 1765 by Thomas Hutchinson, who characterized an Indian gift as "a present for which an equivalent return is expected," which suggests that the phrase originally referred to a simple exchange of gifts. In 1860, however, in John Russell Bartlett's Dictionary of Americanisms, Bartlett said the phrase was being used by children in New York to mean "one who gives a present and then takes it back."
As recently as 1979, the phrase was used in mainstream media publications, but in the 1997 book The Color of Words: An Encyclopaedic Dictionary of Ethnic Bias in the United States, writer and editor Philip H. Herbst says that although the phrase is often used innocently by children, it may be interpreted as offensive, and The Copyeditor's Handbook (1999) describes it as objectionable.
This term has unfavourable connotations in the UK, just so you are aware; 'Indian' here refers more frequently to someone from India, rather than a Native American. Few people are likely to be aware of its original meaning (which is actually a critique of colonialism) and would view it as inherently politically incorrect. I've only ever heard a few people use it here, all 40+ years old, and in every case they were clearly uncomfortable using it in mixed company.
Indian giver etymonline
More than 500 modern phrases include Indian, most of them U.S. and most impugning honesty or intelligence, such as Indian gift. [most?]
An Indian gift is a proverbial expression, signifying a present for >which an equivalent return is expected. [Thomas Hutchinson, "History of Massachusetts Bay," 1765]
Hence Indian giver "one who gives a gift and then asks for it back" (1848)
Your tag asks for etymology ... your title asks for opinion. My opinion: The term is used in AmE and when in context there is no PC issue.