How it is cheap? Didn't you think about the software overhead (time and efforts) to make it work?

That depends on the volume of devices Ravi want to use & also depends on how quick and efficient he can program. If he can finish with the required programming work within a couple of days or so it is really cheap. But if he spends moths with this then btter go with some readymade solution available off the self with vendor.

There are lot of multiport RS-232 cards available and I don't think the cost of ready made card is way too high to get involved in the development of such a system.

Avaialbility in his region my be an issue.

Also if the devices in question exchange lengthy data strings and half of them start transmission simultaneously, what will happen to (already RAM starving) 8051?

The 8051 in concern can pull the handshaking signals to save itself when it has used all its RAM and can keep further requests on hold till it finishes with pending work.

Regards,
Prahlad Purohit