The rapid expansion of wealth in India has big implications for the international, and domestic, art markets. A new class of buyers is emerging. Fine Art Wealth Management explores the issues.

Editor's note: This is the first part of an article exploring the Indian art market, the wealth of that country and the implications for wealth advisors. We are grateful to Fine Art Wealth Management for this article. Part 2 of this article will run later this week.

The Indian art market is expected to grow at 30 to 40 per cent annually in the next few years, driven by worldwide recognition of Indian artists, a growing awareness of Indian art as a profitable asset class, and more spending power. In the past, the Indian art market was largely dominated by collectors and connoisseurs, royal and wealthy Indian families, who acquired art more out of aesthetic appeal than as an investment in an alternative asset. Recent trends indicate the emergence of a new class of buyers, upper middle class families and upwardly mobile professionals, who have combined their aesthetic sense with financial intuition to broad base the market and deepen it to provide an alternative investment opportunity. These developments present interesting opportunities for providers of wealth management services in India. 

Key drivers of wealth creation in India

The rise of an art market often runs in parallel, and reflects a period of economic growth.  Thus, it is useful to understand the process of wealth creation in India, through a study of its economic drivers. The story of the BRIC countries is very much one of a shift in economic power, that likely presages a similar shift in art market influence. Over the past ten years, the four BRIC countries - China, India, Russia and Brazil - have grown from one-sixth of the world economy to almost a quarter, and they drove recovery from the global financial crisis in 2008-2009.  Looking forward, they are expected to overtake the US economy on aggregate by 2018, and contribute to half of global economic growth in the next decade. 

A process of liberalisation and reform that began in 1991 has allowed India to begin to realise its economic potential. Its growing economic heft combined with demographic advantages will contribute to an acceleration of this trend, with India’s economy expected to overtake that of the US by 2050. Economic reforms and an improved investment climate have raised the trajectory for economic growth: real gross domestic product growth averaged 7.2 per cent in the last decade, compared to 5.6 per cent in the two previous decades.  Similarly, per capita GDP growth in constant purchasing power parity terms has more than tripled in the same period.  Investors rewarded this better-than-expected economic growth with solid stock market returns. While savings rates are still high, a domestic demand boom has seen consumption of durable goods escalate.

Growth of the high net worth population in India

While the story of Indian economic growth is still primarily one of rising demand from the middle-income population, and numbers at the top of the income pyramid are still small, the latter has been increasing quite rapidly. Wealth per adult in India rose from $2,000 in 2000 to $4,900 in 2010, but at the other end, only 0.4 per cent of the population own assets whose value exceeds $100,000 

Merrill Lynch/Cap Gemini’s World Wealth Report classifies high-net worth individuals as those having investable assets of $1 million or higher. By this classification, India’s high net worth population expanded by 51 per cent from 2008 to 2009, to a total of 127,000.  While they comprise only 0.01 per cent of the population, they hold 13.6 per cent of India’s total wealth. They also note that India also has a relatively high stock-market-capitalisation to GDP ratio of 2x. 

Merrill Lynch/Cap Gemini also notes a high interest in investing in tangible assets such as gold, jewellery, art and other collectibles from Asia-Pacific high net-worth individuals.  While gold has always held important cultural and investing attributes in India, it is interesting to note that 27 per cent of the average Indian HNW individual allocation to passion investments is held in art assets, relative to 22 per cent globally. This allocation is also the highest in the Asia-Pacific region, after South Korea. 

Wealthy Indians are also exerting significant influence on the global luxury market. Goldman Sachs estimates that the Indian luxury goods market could grow by 20 times over the next 15 years, equivalent to a total increase of nearly $65 billion, contributing nearly $4 billion a year each to worldwide luxury revenues.  According to a recent report by AT Kearney/CII, the performance of categories such as electronics, wines and spirits, apparel and jewellery has been exceptionally strong, with most global luxury product categories posting over 15 per cent growth between 2007-2009.  

Development of the Indian arts infrastructure in the global context

Just like other luxury products, the market for art has also become more global. The rise in the value and prestige of Indian art corresponds to the increasing wealth of Indians both at home and abroad. This phenomenon is similar to that taking place across many emerging markets. As wealth proliferates, these countries are often eager to reclaim their artistic heritage, as well to export a “canon” globally. In China, the government has so far played an active role in fostering the art market, investing extensively institutional resources in contemporary art as well as antiquities.  

This contrasts with developments in India, where private patronage and commercial players have played the key role. This is an interesting parallel to the India’s economic growth, which has been in large part fuelled by private entrepreneurship. State support of Indian modern and contemporary art remains limited to a handful of museums such as the National Gallery of Modern Art in Delhi, and a few government-run colleges such as the MS University in Baroda.

According to an upcoming Harvard Business School Study, the secondary market for modern Indian art materialised and developed as a distinct category since 1995. Prior to that, the secondary market in Indian art was confined to miniatures and antiquities. With Indian legislation severely restricting the export of antiquities, modern and contemporary art is the focus of the global Indian art market. The initial fillip for the development of the modern art auction market was the sale of the estate of major US-based collectors of Indian modern art - Chester and Davida Herwitz - by Sotheby’s between 1995 and 2000.  The sale of 193 lots made $1.38 million in total, and auction houses held mixed sales of Indian modern art, antiquities and sculptures.

The Tuli Foundation (later Osian’s Auction House) held its first auction in India in November 1997. The establishment of Saffronart, an online auction house of Indian art and collectibles, in 2000, played a crucial role in broadening and consolidating the market both in India and fundamentally, among overseas Indians.  Sotheby’s and Christie’s then began to host standalone Indian modern and contemporary art auctions in 2003. The market for Indian art auctions grew from $2.29 million in 2000, to an estimated $120 million today. Christie’s and Sotheby’s now hold specialised auctions for Indian modern and contemporary art in London, New York, and in mixed auctions in Dubai and Hong Kong. The Philips De Pury London BRICs auction in April 2010 was the first of its kind, representing an attempt to capitalise on interest in the world’s fastest growing art markets, and brought in a higher-than-estimated $11 million.      

Private galleries have played a key role in compensating for the relative lack of institutional infrastructure by fostering artists’ careers, staging retrospectives and cultivating public interest. While there are a variety of locally-based galleries of varying sophistication, the past decade has seen the establishment of Indian art galleries with international reach, although some contracted during the downturn in 2008-09. 

These galleries include the Vadehra Art Gallery (Grosvenor Vadehra in London), Aicon Gallery, Bodhi Art Gallery and Bose Pacia/Nature Morte. Following a spate of recent India-themed exhibitions at key art institutions globally, the first Indian pavilion at the Venice Biennale in 2011 will further contribute to the growing validation of Indian art as a collectible category globally. Domestically, efforts such as the Indian Art Summit, which is the first Indian art fair, are helping nurture a wider audience for art in the country, while building links with overseas galleries keen to tap the Indian market. In addition, there are plans to set up the first Indian art Biennale in January 2012 - directed by artists and curators, Bose Krishnamachari and Riyas Komu.

Despite these developments, there is still a sense that the domestic infrastructure is still falling behind the curve. Ms Kirpal from the India Art Summit actually suggests that one of the biggest challenges for the art market in the country is catering to the level of growth that is taking place - both in terms of artistic practice as well as infrastructure building. 

Some of India’s wealthiest are also becoming enthusiastic collectors, and more recently, we have seen more HNW individuals set up foundations to make their collections public. One of the largest has been the Devi Art Foundation set up by Anupam and Lekha Poddar in Gurgaon, as a platform for contemporary art alongside folk and tribal art, and an education and outreach platform. Sugar industrialist Rajshree Pathy has established a museum of contemporary art named Contemplate in Coimbatore in 2011, to showcase her own collection, as well as to host affiliate exhibitions and foster education in art curation and criticism via an art institute, CoCCA. Kiran Nadar also plans to establish the Kiran Nadar Institute of Arts to display her private modern and contemporary art collection in New Delhi in 2012. There are a handful of other examples. 

Additionally, Outset, a London-based philanthropic organisation set up to encourage closer relationships between patrons and contemporary art world, has just opened an Indian arm this year. While these are recent developments, it is worth noting that the very issue of formal private philanthropic giving is relatively incipient in India.  Indians gave away about $7.5 billion to charity last year, or 0.6 per cent of GDP according to a March report by Bain & Co, compared with $300 billion, or 2.1 per cent of GDP, contributed by the US in 2009.  

Profiling the Indian collector

We have discussed how some of India’s wealthiest are becoming enthusiastic collectors, especially for art works and objects from that reflect their own cultural heritage. However, a wider variety of impulses drives the average Indian collector. 

Saffronart, a mainly online art dealer, targets both Indians living in India, as well as the global Indian diaspora - for whom they aim to create a “bridge to India”.  They count HNW individuals such as entrepreneurs, heads of publicly-listed companies, and celebrities amongst their profile of buyers.  In general, while traditional patrons of Indian art were more likely to be old business families or corporate houses, today’s collectors are drawn from a variety of fields - from entrepreneurs to professionals and non-resident Indians - and are on average much younger. Given Indians’ general comfort with technology, the emergence of an online format played a major role in increasing access to art across a broader spectrum of collectors - thus also serving an education and awareness function. In a conversation with ArtTactic, the Saffronart founder, Dinesh Vazirani notes real changes in collector composition following the financial crisis.  While the boom years between 2005 and 2008 were marked by a heavy presence of short-term speculators, the downturn brought in a new breed of buyers. While many with genuine interest were priced out by steep rises in valuations earlier, they can now make good-value acquisitions.  In addition, he believes that big Indian collectors are looking to expand their collections outside the Indian genre. Saffronart has also added collectibles such as jewellery to its auction offering.

Shilpa Bhandarkar of Amaya Art, a smaller online art auction website believes that in general these range from investing with liquid cash on hand, and a desire to boost one’s lifestyle and social status, to a genuine interest in art. Amaya’s customers tend to consist of a younger segment of emerging collectors in their 20s to 40s with a genuine interest in art, but are also willing to “take a punt” with spare cash in emerging artists’ work. 

Elise Foster Van der Elst, who earlier ran BMB Gallery in Mumbai, but is now helping setting up the first Indian Biennale, also believes that after a certain price level, investment is a key motivation. This is also driven by how most collectors were educated and sold to in the boom years, given that recently most galleries had no exclusive rights over artists, and thus did not control their careers. This is changing, she states, as galleries have begun to sign contracts with artists that entail selling restrictions and rights of first refusal. 

She also notes the relative lack of an educational infrastructure for aspiring collectors, for which galleries often had to compensate through their own efforts.  Elise also suggests that the market is very India-focused, although galleries such as BMB and Mirchandani and Steinrucke in Mumbai do promote non-Indian artists.  While the old generation prefers canvas work, the new breed of collectors is more open-minded and well-travelled.  They buy a greater variety of work, and a whole breed of galleries is coming up to cater to these more cosmopolitan tastes.

Bose Krishnamachari, an artist and curator, also echoes some of these sentiments, noting that the issue of “familiarity” still guides collecting and that instead an approach that incorporates “buying a piece of history and memory” is very important in the evolution of collecting. 

Neha Kirpal of India Art Summit believes that there is an evolving appetite for Western art in India, albeit from a low starting point.  She notes higher prices points for Indian art now means that they are often comparable with blue-chip art from around the world. In addition, there is a great sense of aspiration that exists to acquire the best of what is available around the world across luxury categories. Thus, top international artists have recently found more of an audience at the fair.