One of the biggest frustrations of holding an Indian passport is the difficulty to use it. Damn, Indians need visa everywhere. I am working out of Brussels when my whole team is in London because my UK visa expired. Indians can't go anywhere without visas. Now, even Nepal is considering visas for Indians! (I mean where you would want to go. To find the list of countries where Indians can travel without a visa, visit: http://answers.google.com/answers/threadview?id=772153 )
Now why does that happen?
I think the biggest reason is that everybody else in the world require an Indian visa to visit India. These agreements are bilateral and for some reasons, India has not entered into any such agreements.
This treatment is always mutual. Usually Indian embassies in Europe issue short term visas, and Indians end up getting the same 3- month single entry Schengen visas. I don't know who started this. With the increasing terror around terrorism, situation is not expected to get better. Till then Indian tourism industry continues to be hit, and we continue to stand in long lines, filling forms and apply for all the visas in the world.
p.s. Perhaps the Indian passport is the thickest in the world. All the EU/US/Canada passports are wafer thin :-)