I have found the following disadvantages of the fianchetto bishop:
1) The diagonal it controls is often blocked by the knight in its natural square.
2) The diagonal it controls is often blocked by central pawns of the same team or of the opponents.
3) Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the pawn structure.
4) If the other bishop is developed along its normal diagonal, for eg.to b5,then advancing the knight pawn - b2-b3 cuts off the escape route for the other bishop - after for eg. 4) B-b5 a6 5) B-a4 b5 and 6) B-b3 is not possible because of the pawn at b3 and the bishop is trapped. So it somewhat impedes the development of the other bishop.
5) The fianchetto bishop cannot be defended by a pawn and is vulnerable to attack from the sides. Also the 'hole' in the pawn structure can make the rook vulnerable if the fianchetto bishop is moved from its b2 or g2 spot.
For these reasons, I've personally never preferred the fianchetto.
Yet, despite these drawbacks, the fianchetto development is often used in certain openings such as the Sicilian dragon and variations of QGD. Some players even open the game with the fianchetto.
So, overall, is fianchetto development a good idea and under which conditions is it justified? What are the points to keep in mind during fianchetto development?