"the project's insistence of defined topics ...would be rejected by lottery or the arts council as not inclusive enough."
Sounds like rubbish to me. If you were just doing one programme, then maybe. But if you're doing a whole bunch of them, I don't see why it would be "not inclusive enough". And even if it was only one, it's then up to the Arts Council to distribute funding to other groups to get diversity. After all, you're not going to get many Indian classical musicians playing Western classical music, but that shouldn't stop both Indian and English musicians getting funding.