Mitra,
Bollywood is national phenomenon in India. Time and again, the people keep saying that the two things that bind the whole country together - Bollywood and Cricket. Even though there is no national language in India, the Governemnt of India communicates with State governments in Hindi and English, for the simple reason that it is the one language that most people in india commonly understand. Therefore if any film industry wants the whole of India as its audience, it would have to make films in Hindi.
Therefore even if it is known to be primarily a North-Indian language, it is the language used by the people of different parts of India to communicate with each other, thereby making it the language of Bollywood, the Hindi Film Industry (not north Indian or western India). Bollywood prides itself on not being limited by geographical boundaries, and calling it a north-indian industry does just that.
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