India’s art market is estimated to have been at around Rs14.6 billion (Rs1,460 crore) in 2017, a decline of 6% from the previous year as demonetisation and introduction of the Goods and Services Tax adversely affected growth in the industry, a FICCI-KPMG report says.

The report, titled ‘Visual Arts Industry: Painting the future’, talks about the art industry and highlights major trends, key drivers and challenges faced by the visual arts industry.

While the scrapping of high-value currency notes in November 2016 had an adverse impact on sales of art galleries, which also deal in sales of affordable art, challenges in the implementation of GST impacted sales of auction houses, with many holding at least one less sale during the year, according to the report.

Under the new taxation structure, artworks, including paintings, drawings and pastels, original engravings, prints and lithographs, original sculptures and statuary in any material and antiquities older than 100 years, fall under the 12% tax bracket, making them more expensive than previously, especially in West Bengal where artworks were earlier exempted from VAT.

A significant proportion of the art market belongs to the 0.1-0.5 million segment and a tax rate of 12% on this is substantial enough to discourage buyers.

“Growth in art and cultural initiatives is helping lay a strong foundation, positioning India as one of the major art destinations. However, the industry continues to grapple with challenges regarding infrastructure, taxation and lack of awareness about art. With joint support from both private players and government bodies, the industry is likely to embark on a remarkable growth trajectory," said Girish Menon, co-head -- media and entertainment, KPMG India.

Although the Indian visual arts industry has been dominated by art galleries, auction houses are slowly increasing their share in the overall market pie. Of the total visual arts market size in 2017, the share of art galleries stood at 64% compared with 36% for auction houses.

Major auction houses in India are: Saffronart with a 26.6% market share, followed by Christie’s (21.1%), AstaGuru (18%), Sotheby’s (13.2%), Pundole’s (9.2%), and others (12%). Although Christie’s may have withdrawn from the live auctions in the country, it still maintains its leading position through online auctions.

There has been a radical decline in the value of contemporary works sold since 2013, the report said. In the period of January to September 2017, 183 works of Indian contemporary art were sold in auctions around the world, fetching a total of 126.3 million. This was a sharp decline from the 333 artworks sold for 399 million during the same period in 2013.

Factors contributing to the decline include a lack of institutional support, an artificial rise in art prices from a decade ago and collectors and galleries from Europe leaning in favour of contemporary art from other regions such as Africa, the FICCI-KPMG report says.

However, the report said the Indian art industry is likely to see contemporary art sales picking up, supported by a diversified buyer base mostly in the age groups of 30s and 40s. This trend will be further supported by an increase in online art sales with a number of players offering curated, branded online auctions across an assortment of art and collectibles.

Some of the key challenges in the Indian industry include lack of infrastructure, skilled manpower, forged art and a lack of art awareness. The Indian art industry also needs a specialised association of visual arts professionals who can engage directly with the policymakers.

The report recommended that involvement of corporates and the private sector could help the industry in raising funds, organising art festivals and events, and promoting budding artists.

Apart from this, government support, particularly through funding, infrastructure, creating awareness and rationalising the tax structure would build a solid ground for the industry to flourish.