Are demons (asuras) a manifestation of the supreme being?

Question

Hinduism acknowledges god as omnipresent - he is present everywhere and in every soul. He is said to have created the cosmos. Then, why did he create demons and does he manifests in demons too?

Answer 1

God (Brahman) has created (more correctly projected) the universe, but we (each individual jiva) creates its own karma, we are responsible for our own karma. Krishna says in the Gita (9.4-5):

By Me in My unmanifested form, are all things in this universe pervaded. All beings exist in Me, but I do not exist in them.

And yet the beings do not dwell in Me--behold that is My divine mystery. My spirit, which is the support of all beings and the source of all things, does not dwell in them.

So the unmanifested pervades everything but does not dwell in them. So what you call demons are jivas whose karmic actions have made them demons. Like all jivas, their existence as demons is not forever.

I think your question is also trying to ask why is their evil? Because of maya. Swami Vivekananda says (Complete Works, V2, section Jnana Yoga, lecture Maya and Illusion, available here - http://cwsv.belurmath.org/volume_2/vol_2_frame.htm):

Again, we often hear that it is one of the features of evolution that it eliminates evil, and this evil being continually eliminated from the world, at last only good will remain. That is very nice to hear, and it panders to the vanity of those who have enough of this world's goods, who have not a hard struggle to face every clay and are not being crushed under the wheel of this so-called evolution. It is very good and comforting indeed to such fortunate ones. The common herd may surfer, but they do not care; let them die, they are of no consequence. Very good, yet this argument is fallacious from beginning to end. It takes for granted, in the first place, that manifested good and evil in this world are two absolute realities. In the second place, it make, at still worse assumption that the amount of good is an increasing quantity and the amount of evil is a decreasing quantity. So, if evil is being eliminated in this way by what they call evolution, there will come a time when all this evil will be eliminated and what remains will be all good. Very easy to say, but can it be proved that evil is a lessening quantity? Take, for instance, the man who lives in a forest, who does not know how to cultivate the mind, cannot read a book, has not heard of such a thing as writing. If he is severely wounded, he is soon all right again; while we die if we get a scratch. Machines are making things cheap, making for progress and evolution, but millions are crushed, that one may become rich; while one becomes rich, thousands at the same time become poorer and poorer, and whole masses of human beings are made slaves. That way it is going on. The animal man lives in the senses. If he does not get enough to eat, he is miserable; or if something happens to his body, he is miserable. In the senses both his misery and his happiness begin and end. As soon as this man progresses, as soon as his horizon of happiness increases, his horizon of unhappiness increases proportionately. The man in the forest does not know what it is to be jealous, to be in the law courts, to pay taxes, to be blamed by society, to be ruled over day and night by the most tremendous tyranny that human diabolism ever invented, which pries into the secrets of every human heart. He does not know how man becomes a thousand times more diabolical than any other animal, with all his vain knowledge and with all his pride. Thus it is that, as we emerge out of the senses, we develop higher powers of enjoyment, and at the same time we have to develop higher powers of suffering too. The nerves become finer and capable off more suffering. In every society, we often find that the ignorant, common man, when abused, does not feel much, but he feels a good thrashing. But the gentleman cannot bear a single word of abuse; he has become so finely nerved. Misery has increased with his susceptibility to happiness. This does not go much to prove the evolutionist's case. As we increase our power to be happy, we also increase our power to suffer, and sometimes I am inclined to think that if we increase our power to become happy in arithmetical progression, we shall increase, on the other hand, our power to become miserable in geometrical progression. We who are progressing know that the more we progress, the more avenues are opened to pain as well as to pleasure. And this is Maya.

Thus we find that Maya is not a theory for the explanation of the world; it is simply a statement of facts as they exist, that the very basis of our being is contradiction, that everywhere we have to move through this tremendous contradiction, that wherever there is good, there must also be evil, and wherever there is evil, there must be some good, wherever there is life, death must follow as its shadow, and everyone who smiles will have to weep, and vice versa. Nor can this state of things be remedied. We may verily imagine that there will be a place where there will be only good and no evil, where we shall only smile and never weep. This is impossible in the very nature of things; for the conditions will remain the same. Wherever there is the power of producing a smile in us, there lurks the power of producing tears. Wherever there is the power of producing happiness, there lurks somewhere the power of making us miserable.

Thus the Vedanta philosophy is neither optimistic nor pessimistic. It voices both these views and takes things as they are. It admits that this world is a mixture of good and evil, happiness and misery, and that to increase the one, one must of necessity increase the other. There will never be a perfectly good or bad world, because the very idea is a contradiction in terms. The great secret revealed by this analysis is that good and bad are not two cut-and-dried, separate existences. There is not one thing in this world of ours which you can label as good and good alone, and there is not one thing in the universe which you can label as bad and bad alone. The very same phenomenon which is appearing to be good now, may appear to be bad tomorrow. The same thing which is producing misery in one, may produce happiness in another. The fire that burns the child, may cook a good meal for a starving man. The same nerves that carry the sensations of misery carry also the sensations of happiness. The only way to stop evil, therefore, is to stop good also; there is no other way. To stop death, we shall have to stop life also. Life without death and happiness without misery are contradictions, and neither can be found alone, because each of them is but a different manifestation of the same thing. What I thought to be good yesterday, I do not think to be good now. When I look back upon my life and see what were my ideals at different times, I final this to be so. At one time my ideal was to drive a strong pair of horses; at another time I thought, if I could make a certain kind of sweetmeat, I should be perfectly happy; later I imagined that I should be entirely satisfied if I had a wife and children and plenty of money. Today I laugh at all these ideals as mere childish nonsense.

The Vedanta says, there must come a time when we shall look back and laugh at the ideals which make us afraid of giving up our individuality. Each one of us wants to keep this body for an indefinite time, thinking we shall be very happy, but there will come a time when we shall laugh at this idea. Now, if such be the truth, we are in a state of hopeless contradiction — neither existence nor non-existence, neither misery nor happiness, but a mixture of them. What, then, is the use of Vedanta and all other philosophies and religions? And, above all, what is the use of doing good work? This is a question that comes to the mind. If it is true that you cannot do good without doing evil, and whenever you try to create happiness there will always be misery, people will ask you, "What is the use of doing good?" The answer is in the first place, that we must work for lessening misery, for that is the only way to make ourselves happy. Every one of us finds it out sooner or later in our lives. The bright ones find it out a little earlier, and the dull ones a little later. The dull ones pay very dearly for the discovery and the bright ones less dearly. In the second place, we must do our part, because that is the only way of getting out of this life of contradiction. Both the forces of good and evil will keep the universe alive for us, until we awake from our dreams and give up this building of mud pies. That lesson we shall have to learn, and it will take a long, long time to learn it.

Evil and goodness come and go, demons come and go, universes come and go, the Soul endures for ever. Realize your identity with the Soul.