I have asked many people but haven't got a satisfactory answer. Not only Hindus reluctant to convert other people, but also it is extremely difficult for people from other religion to become Hindu. Why is that?
I have found the following explanation by Swami Tapasyananda useful as to why Hinduism does not proselytize.
…Worship of a God who is not also the Absolute is idolatry, and a mere Absolute, who is characterless and is irresponsive, is not better than matter. The Vedanta accepts the Supreme as both Personal and Impersonal. When the votary in the course of his spiritual development becomes de-personalized on achieving the elimination of his ego-based body-mind, he will be able to understand the true Impersonal. Till then, that is, so long as he is a person, the Impersonal and the Absolute can only mean for him a Personal Being who is much more than what he, a person, has grasped or can grasp of Him. To illustrate, the Impersonal-Personal Divine of the Vedanta is the ocean and the God of adoration of the devotee is like a big field or backwater into which the water of that ocean has flowed. The many deities that form the object of worship of Vedantism are like these tanks and backwaters in the analogy. They are so many manifestations of the Personal-Impersonal Sat-chit-ananda in the thought structures of those who adore Him, or are forms adopted by Him for the achievement of cosmic purposes in his world-play. The worship of these forms with an understanding of the infinitude that informs their finitude ...... is the only form of true worship that the human mind is capable of, so long as man remains a limited person. The other ideas of the Divine which Semitic religions hold – their so called boasted monotheism – is only a form of disguised idolatry; for when it is said that Jehovah is a jealous God, or that there is no God but Allah, it is obvious that the Supreme Being is being identified as an exclusive individual and not as an expression of an Infinite Being in terms of the human mind. When the link with the Infinite is forgotten, a Deity, whether it is a monotheistic entity or a polytheistic being becomes a mere idol. Real worship of the Supreme Being is possible only when the principle of Vedantic polytheism is understood – that principle being the perception of the Infinite Personal-Impersonal Being through a limited manifestation of Him.
A Vedantic Deity is never aggressive, demanding the overthrow of other deities. But, a monotheistic Deity, always a jealous God, cannot tolerate another Deity.As Toynbee has pointed out, the monotheistic Deity of the Semitics is only an apotheosis of the group or tribal consciousness of certain people, a sentiment that held together societies before nationalism took its place. Just as the nationalistic patriotism is eager to absorb all other countries, that form of group consciousness masquerading as monotheism wants to supplant all other religions and establish its Deity in their sanctuaries. Proselytism, for which many religions stand but which has no place in the Vedantic scheme, is the consequence of the Infinite Being but a personalisation of the group consciousness of a people.
The principle enunciated above in regard to Deities is applicable also to worship of God in holy images, which critics, who are practicing real idolatry, have stigmatised as idolatry. The Vedantin’s God is not an individual as the Semite’s. He is the Universal Spirit who has manifested as All-Nature. He is one with all, and if a person with faith wants to see Him anywhere, He is present there. Like water running all through the ground, He is everywhere; and if the well of faith is dug, He becomes available for worship. A holy image is thus a point at which His real presence is available for imperfect man to apprehend and commune with. It is not a mere means for practising concentration as some apologists say. It is much more. It is a point of real communion with the Divine when the eye of faith reveals Him as accepting the worship and offering made by the devotee. It is in this spirit that all great sages and saviours of India, down to Bhagavan Sri Ramakrishna, have seen and adored the Holy Images. Its practice is one of the most excellent and necessary aids for the vast majority of men to gradually rise in the spiritual scale. The Divine presence is made concrete, and prayers and adoration made meaningful to those men who cannot dive into the depths of consciousness by meditation and introspection and commune with the subtle Spirit as the Inner Pervader within. It is therefore a necessary step in practising religion as an experience instead of reducing it to an expression of conformity with a dogmatic creed or adherence to some formal code of conduct and rituals.
[Swami Tapasyananda’s introductory remarks in ‘A Primer of Hinduism’ by D.S.Sarma]
It is very misunderstood that Hinduism/Sanatan dharma does not encourage/discourage conversion.
During ancient times Hinduism used to engulf other religions as sects inside its own. Various tribal /regional gods etc. usurped were denoted as avataras of mainline Hindu Gods. Hence, entire religions itself (not just followers) were engulfed (converted) by Hinduism
The Aversion of conversion in hinduism, which you are talking of, is very prevalent when you talk of hinduism as understood in its "Brahminism" sense (ie, the local pundit, pujari as they perceive Hinduism). In this arena, the Casteism (almost racism kind of ideology) and Pauranic conventions prevails more than the base philosophical principles of hinduism/sanatan dharma. So in this sense, yes - it is not encouraged. But when you go deeper, then you will find that Casteist tendencies which encourage people to keep their blood lines pure (by not intermarrying etc.), they will reasonably be uncomfortable with new bloodlines coming inside. So they will try to discourage it. But when you analyze it from canonical text (not just any scriptures), then Casteism (Racism) is not part of canonical hindu religion's principles.
Hence, Arya samaj sect which profoundly says that it is based only on vedas, is very easy to easily convert from other religions to Arya Samaj. Because, it has no connection with these Pauranic tendencies which were not part of Shruti.
Also, ISKCON sect which takes only Vedas, Bhagvad purana etc. as canonical text; in this also you can easily convert from other religions to Hinduism. ISKCON people actively spead gospel of krishna.
in philosophical schools like Advaita etc. (like Vivekananda's many foreign converted disciples and like Aurobindo's foreigners converted disciples) even 100 years ago had no problem in getting converted from other religions.
Conclusion: Hinduism is not monolithic sect. Hence:
In few sects and prevalent brahminism (casteist tendencies more prominent) followers of hinduism only discourage peole from other religion converting to hinduism.
But other sects of hinduism have no problem in it. So having a view on conversion is a sectarian issue. Conversion is not part of central focus of Hinduism, i.e. Central hinduism core has no encouragement/discouragement on this, i.e. it is more concerned about way of living. Sects down the below have their own views regarding conversions.