To be in a position to assess whether Lord M's statement was a fair assessment, we would first need to:
1. become familiar with the whole native literature of India;
2. become familiar with the whole native literature of Arabia;
3. establish the contents of the "single shelf of a good European library";
4. establish the criteria by which the estimate of "worth" in each case was to be made.
My suspicion however is that, having gone to so much trouble, we would be unlikely to wish to denigrate the native literatures in question.
If the subject interests you, by the way, Anon, you may wish to read Edward Said's Orientalism.
MrP