Grind coconut, shallots, ginger and chilly with little water to a thick and smooth paste.
Heat oil in a kadai. Splutter mustard seeds.
Add the dry chilli and curry leaves and saute for a few seconds.
Add in the ground coconut paste and cook on low flame until just warm - do not boil, the mixture will break up.
Switch off and add salt to taste.
Serve warm with idlis or dosas!