Why does BITS Pilani have such a low average CGPA?

Your grades don't necessarily determine your skills and capabilities. I have seen many low graders who are successful today thanks to the excellent exposure and opportunities they got at BITS Pilani. In fact, one of my friends even claims that BITS Pilani alumni have something charming about them that is missing in IITians. I attribute this to the splendid campus life of this institute. 

Life here is so dynamic and indulging that without even realizing your personality is groomed and you become a different person when you graduate. A close friend of mine had a very low CGPA and had almost given up on MS or Ph.D. After working for a couple of years he finally apple for one and got selected in the US. He realized his BITS tag and the knowledge he gained there gave him an edge over other batchmates. 

So yes grades do matter but only to a certain extent. Ultimately it is your hard work and consistency that makes you successful and stands apart from the crowd.