Check out Tyler Cowen's provocative twin posts on Mrs Gandhi and the irrationality of the Indian Voter. I have very different views on the Indian voter, But I would get to that later.

But let me direct you to his more interesting remarks on Bollywood.

From what I see around me, there seems to be two largely distinct and seperate audiences. The urban, English speaking population that likes Hollywood films is not much into mainstream Bollywood films (And of course I am excluding parallel/art films from my definition of Bollywood). Likewise, the mainstream Hindi film consumers in India watch very few American films. There is certainly a subset of the audience that watch a lot of both (and cable has increased this audience substantially), but I do not think that it is still a significantly large number)

There is also very little distribution for good English movies outside the metros. Only soft-porn and action blockbusters usually get into the smaller cities. (Again, cable tends to short circuit these easy assumptions)

Can it change? Of course it can. I feel ambivalent about (what I think of as) cultural exports to and from India. I wrote a longish post on this here. My views have not changed substantially since then.

A few additional points to what I said there:

1) Bollywood has a vast consumer base outside of India in Central Asia, Middle East (including Iraq!) and China. We have done a terrible job of exploiting that.

2) I always thought that Bollywood films tend to reflect existent social mores more than they shape social mores. As a high school student, I enjoyed reading Pritish Nandy's back page commentary in the 'Illustrated Weekly'. He used to make the same point very well. (although he is now producing duds as a producer of Hindi films)

Over the last few years, Bollywood films have been becoming more open and secular in their treatment of sexuality. It is possible that they only cater to metropolitan India and to the broader diaspora living abroad that has more far purchasing power than it did a decade back.

3) I am not very familar with films coming out of the South. It doesnt sound like I am missing out much (obviously, there are always exceptions like Adoor Gopalakrishnan). Similarly, there are exceptions in Bengal too. But mostly, watching new Bengali films these days is torture.

I think the really interesting stuff is happening in the realm of low budget films made in English. The current generation of art filmmakers in India often think in English. Unlike the previous generation which grew up under the shadow of colonialism, they are far more comfortable with the idea of creating in English language. Unfortunately, by doing so they are giving up on a large audience.