Hi Navel, Good question, demand printing of course raises the price of production as any limited production run does. Thus the end price is higher and less competitive. Still, it is an option. Suppose for instance you author a book and publish it yourself through Booksurge. Now you would like to get it available on Amazon, this has become easier.. BUT suppose you would like to get a library system or a school system interested.. .. there you need to market and sell these yourself and the competition is fierce ( just to get them to read a synopsis let alone the whole book).
I guess what I am trying to say is self publishing has come along way, but it still ha a long way to go. As I mentioned it depends somewhat on one's goal. If the goal is simply to publish, ( say for friends or a very specific subject matter, sure it will do this in a non cost effective matter within limited guidelines. Yet if one's objective is to get the book into the worldwide mainstream then the vast majority will be disappointed. However if the author has funds they may pay for improvements such as independent editing, formatting, indexing, and the all important marketing.... they have a leg up.
The same can be said for obtaining an agent, some are good some are hoaxes, one has to be careful with agents. Will say William Morris take you on then you are probably in a good situation, yet it will cost you at least 15% of revenues and should you need to sell your book outside of your native country another 5% at least. Yet be warned this is not a quick deal.... there is nothing quick about it. William Morris for instance takes 6-12 months just to get to your proposal....that is not even the whole book just the first 2 or 3 chapters.... Then IF they like it then they take another 3-6 months to read the entire work.... Then they look for one of the larger publishers ( normally) and they repeat this process, negotiations provided they want to publish it.... Then when you are inked on the dotted line.. Then you need to get in production.... right now a major publisher is taking between 9 and 18 months for first time authors ( you get bumped by their majors) .. So three years later in many cases the book is on the shelf and hopefully they have marketed it properly and it sells.... Once you are in though things speed up with your second and third books particularly if they are HOT....
Or you can find a niche or middle level agent and or publishing house and this will cut the time significantly. As I am sure you know 92% of all bestsellers are produced by the top 5 publishing houses.... Indeed one may get lucky and be in the 8% but those are the numbers.... Unless you have an IN or are recommended to a major publisher few of them accept unsolicited submissions.. so you either need to be well connected or have a reputable agent.
So in many cases authors self publish or on demand publish because of the time involved but it is not easy if your objective is to get into the mainstream.
I've talked to writers who have self-published and it is important to acknowledge that it's hard work. You have to manage everything a publisher would do - from fonts/design, printing/binding, editing, distribution and marketing. If you just paid for hundreds of copies of a book, you better get your money back! So, you have to work quite hard to compete.
One author I met actually did a fantastic job of advertising (she had a niche market with African-American community). She did some guerrilla marketing and created a "sensation". Random House picked up her book for a 6 figure contract!
I met another one who wrote a book about her grandmother.. she sells those books as people ask for them and the rest are in her basement.
Do more research.

As a professional Editor I get to see all kinds of stuff. My friend Viji Varadarjan has become publisher, distributor, PRO everything for getting her cookbooks published.
Top publishers refused to publish her books as they already had in-house cookbook writers. They are bestsellers and have won awards
Indian Writing from Chennai is encouraging translated works from regional languages. However much there is a hue and cry about reading as leisure activity being eroded, books by many authors are hitting the shelves.
Forums like Sulekha give us the chance to showcase our writing. Even they are selective about choosing pieces for their special issues that are published.
The Illustrated Weekly of India used to be a great magazine for people to publish their creative works. There is no such magazine today in English.
PN
Padminijee,
Yes, once the 'print on order' facility wouldbe easily available in India, too, the publishing businesss would find it easy to come out with more and more literary work, especially the fiction.