Both "Western" and "Indian" are rather broad categories. Are Greek plays, Shakespeare, and Tolstoy all "western" lit, even though they refer to very different styles and ethos? Likewise, Indian literature is quite broad. The conventions of Tamil literature are quite different from much of the Sanskrit literature, and there is quite range in between. Even considering a single work such as the Ramayana we can see varying styles depending on the region, culture, and sectarian interest in the different retellings. even in a single language such as Sanskrit there is a wide variety of styles and genres. Basically, this is a variant on the "any one literature type is too broad to judge as a whole" argument, and it applies to both.

That being said, instead of arguing it would be worthwhile to discuss what is fantastic about different literatures, whether that be the sparing emotional tone of Tamil poetry, or the gripping drama of the Sanskrit Mahabharata, or the characterization seen in the plays of Kalidasa.

We should also include other regional literatures in any such discussion. China has an ancient literary tradition, as does Japan and the Middle East, among others.

To respond to your statement, I do not think that one can declare the superiority of either literary tradition, as each is unique to its specific cultural heritage.

However, I do think that modern Indian literature is greatly influenced by the Western tradition. If Western literature is that which is rooted in the languages and cultures of Europe, then Indian literature has been and continues to be influenced by Western literature. Why? Simply consider the facts. The European occupation of India, particularly the British occupation, undoubtedly impacted and continues to influence the literary tradition of India. The English language greatly influences the business interests and the educational institutions of the India, which also impacts the thinking of modern Indian authors. Also, think of the number of non-resident Indians living in the West who are actively writing about Indian culture and gaining a worldwide readership. Authors like Jhumpa Lahiri (The Namesake) and Vikrim Chandra (Sacred Games), of Indian descent and western educational institutions, present India, its culture, and its traditions to a global audience and must have some impact on the literary tradition of their homeland. 

The first question I would pose back to such a topic would be to examine the criteria or standards being used to determine "superiority."  How do we go about determining what constitutes "superior" literature to other types of literature?  Before any judgments can be made as to what defines greatness or excellence in the works, we have to make sure we are clear on our notions of the components of "superiority."  I think we need to clearly articulate this before all else.

The second topic that I think needs to be addressed would be again in the realm of definition.  What constitutes "western literature"?  Is this the traditional notion of "Western Civilization", whose works include the standard canon of "Plato to Nato?"  If this is the case, I would further question if tradition, itself, has not changed over time.  Certainly the accepted "canon" of great works in 1980 was vastly different than what is considered of today.  This is not a reflection of anything but changing perceptions and thoughts over time.  Another component in this realm of the more elemental question of what constitutes "literature."  Are we examining purely literary works?  Would Western literature include philosophy such as the Greek thinkers and Thomas Aquinas?  Does poetry count?  For example, Edward Said's book, Orientalism is a stunning account of history and politics. Yet, is this "literature"? The notion of "Western Literature" is hugely expansive and is something that needs to be further defined.  A larger and even more expansive is the question of what constitutes "the west"?  I know it might seem a bit silly, but in all honesty imperialism and colonization vastly changed the mere definition of "the west" because ideas and thinkers were diffused to all over the world as there was a greater exchange between what was considered traditional "west" and "east."  Example:  Forster's Passage to India is written by a Western author, but many of the themes in it have more connection to Indian thought than anything out of traditional notions from the West, and perhaps that is the point of the work.  Is it Western or Indian?  This modern retelling is evident when we examine post- colonial literature.  Take Salman Rushdie.  Does he represent "Indian Literature" or "Western Literature"?  Rushdie is an especially thorny case because he was born in India (actually Pakistan) and then studied in England and ends up critiquing all three nations.  In which category would he be included:  Western or Indian Literature?  Arundhati Roy is much the same way.

Having said all of this, I believe that these are the questions that need to be clearly defined.