I have taken fresh looks at the same question on many occasions during the past 20 years, and here's a relatively recent essay which highlighted some intriguing aspects of the the whole issue:
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4 Oct. 2010
Conservation and innovation may appear to be mutually contradictory terms in the context of all arts; but actually they are the twin cross-threads which constitute the fabric of all dynamic, artistic traditions. This is particularly true of all classical music.
No matter how old and conservative a classical music tradition may be, it must have had a beginning at some point of time in the distant past, and that beginning would obviously have been based on some innovation or other. Such a musical manifestation would have been static and sterile and wouldn't have evolved into a tradition at all, if it hadn't encountered and absorbed many far-reaching innovations in the course of ever-changing social and cultural scenarios and norms.
The necessity to introduce legitimate innovations, which do not dispense with the basic elements and principles of a musical tradition, arises mainly from two important factors. One of them is the increasing sense of monotony created by endlessly recurring features, and the constant need to find more exciting methods of performance. The other factor is the progressive and dramatic transformation of the social and cultural environment caused by successive technological revolutions - reflected in the lifestyles and attitudes of the musicians and music-lovers - which creates an urge to trim some conventional modes of performance and introduce some new perspectives.
One of the attractive innovations attempted in musical traditions all over the world, has been to introduce some colors from other musical systems, whether these happen to be close or remote to one's own system. And such enterprise evolves into a kind of import/export business when like-minded musicians belonging to different systems of music get together and try to discover a common idiom and explore some virgin musical vistas. Right or wrong, in the case of joint ventures associating Indian classical music (whether Hindustani or Carnatic) and Western music (whether classical, jazz, pop, folk, Latin American or whatever), such activity has come to be categorised as ‘fusion'.
In this short essay I have only explained the logic of ‘fusion.' Obviously, such experiments in innovation can result in fascinating and permissible performances only if the musicians who undertake them are not only well accomplished, but actually function at the highest level of imagination, excellence and integrity. In the case of Carnatic music, it is vitally important that the spiritual quality of the music is never sacrificed or even diluted -- so what exactly is permissible, and what isn't? In other words, what exactly are the limits of ‘fusion'?