Art Market: From Raj to riches: Rescued from temples and maharaja's palaces, the art treasures of India attracted high bidders at Sotheby's first Delhi auction last week

DOES India need Sotheby's or Sotheby's need India? As the barefoot beggars ran to the window of my taxi, showing off an amputated limb or ugly skin disease and rubbing their stomachs to indicate hunger, the air-conditioned marble hall in New Delhi where Sotheby's sold pounds 1,189,030 worth of art treasures last week, began to seem obscene.

Blame for the extreme contrast between wealth and poverty in India cannot, of course, be laid at Sotheby's door. I was told that there are now 40 million millionaires in a total population of 844 million. I'm not sure I believe it, but the existence of fabulous fortunes is a fact of life, both in the hands of princely families and newly successful businessmen. That is why Sotheby's believes it needs India.

Meanwhile centuries of art treasures are spread around decaying maharajas' palaces, uncared-for government offices, and ancient temples in the poverty-stricken villages of rural India. Dramatic variations in temperature, high humidity, insects, mould and fungi are steadily destroying them. Sotheby's suggests that if it could tempt Indian millionaires to take up art investment, it could help preserve the nation's heritage. At present most of the old art put up for sale is smuggled out of the country. Should Sotheby's succeed in generating an internal market, it will do the nation a service. Perhaps India does need Sotheby's.

The first two-day auction on 8 and 9 October was a victory for the auction house, which has been attempting to gain a foothold in India for more than a decade. The unlikely treasures it was permitted to sell ranged from Edwardian cigarette cases with false lids hiding enamel paintings of naked girls, to 19th-century Chinese and Japanese porcelain; from Victorian pictures, to magnificent bronze depictions of Hindu deities of the 11th and 12th centuries. The content of the sales was not dictated by what art is available in India, but by an intricate interplay of heritage laws, taxation policy and red tape.

Nothing over 100 years old can be exported from India, while all paintings, sculpture and manuscripts created before 1892 must be individually registered with the Archaeological Survey of India. The Survey office also has the right to declare post-1892 art works as national treasures and deny their export. Seven 20th- century Indian painters have been accorded national treasure status; none of their works is allowed out of the country.

Sotheby's auction kicked off with late Victorian and Edwardian paintings, many of them purchased from Royal Academy summer shows between 1880 and 1930. A high proportion of the scantily clad classical maidens, English landscapes and sporting pictures are said to have come from the Jam Saheb of Jamnagar, who has abandoned the family palace on the coast of Gujarat in favour of a bungalow, and runs the 55 acres of his palace grounds as a mini-zoo stocked with flamingos, crocodiles and hyenas. His extended family is currently fighting over the division of its former spoils; members have launched 43 separate property and tax suits.

Sotheby's would not confirm that the paintings came from Jamnagar, but the physical distress of the pictures spoke of a decaying palace. The heavy gold frames which would have surrounded them at the Royal Academy had disintegrated, and most were edged only by the thin gold slip which habitually divided the painting from its carved frame. Some works were flaking and obscured by yellow varnish, but the worst of the bird droppings and water damage, which Sotheby's admits were formerly a problem, had been dealt with by restorers.

The Indian government's curious affection for the artistic left-overs of the British Raj was highlighted by its decision to classify three post-1892 British pictures as national treasures. Two classical maidens, a Tambourine Girl and a Fruit Seller leaning languidly against marble balustrades under blazing Roman skies, painted by John William Godward, were bought by an Indian collector at 150,000 rupees ( pounds 3,100) apiece. But the third, John William Waterhouse's medieval damsel, Gathering Flowers, painted in 1916, was shunned by all.

The former director of the National Museum, Dr L P Sihare, has explained to me that the art of the British Raj will ultimately prove as significant to the national heritage as the 16th- and 17th-century monuments of Mogul India. He is deeply suspicious of Sotheby's.

'Is there a guarantee that all works of art and jewels, including fabulous collections, will be sold only through public auctions?' he thundered in a recent newspaper article. 'Is it not conceivable that many items may be sold privately? In India, works of art and jewellery items are mostly bought using black money and not by making payments through cheques.'

Sihare undermined his case by pointing to India's black economy. Others enthusiastically welcome the opportunity Sotheby's provides of doing honest business at a public auction - notably the connoisseur art dealer Kekoo Gandhy, who pioneered the market in contemporary Indian art and is now setting up a National Gallery in Bombay. He was selling secondary 20th-century paintings through Sotheby's to raise funds for the gallery, and was delighted by the results.

A fashionable boom in contemporary art collecting has swept India over the last three years, largely based on black money - cash income on which tax has been avoided. All purchases at the Sotheby's sale had to be overt, but still collectors competed keenly. A 1938 canvas of huddled village women, by the Indian follower of Gauguin, Amrita Sher-Gil, sold for pounds 23,000 and a Picasso-esque Figures in a Landscape by the country's most popular living artist, M F Husain, scored pounds 18,300 - among the highest prices on record for 20th-century Indian painting.

Sotheby's hope that rich new collectors, or corporate buyers, could be tempted to purchase important early sculptures proved illusory, however. There were two magnificent Chola bronzes of the 11th-12th centuries estimated around pounds 100,000, but no one was prepared to face the inevitable tax investigation which would result from bidding such a price in open auction.

The two-day auction provided a fascinating insight into modern Indian taste. No one much wanted the 19th-century British pictures, but elaborate 18th-century and later bronzes of Hindu deities proved popular, and so did 19th- century Chinese and Japanese ceramics - densely patterned and heightened with gold. The Indian government underlined this taste by deciding that hand-painted Chinese vases were 'paintings' and must therefore be registered with the Archaeological Survey - even 19th-century famille rose. Antique wrist- watches sold well, although pocket-watches were mainly shunned.

Most curious of all was the revelation that silver cigarette cases with naughty pictures of naked girls inside had lost none of their appeal since they were first imported from Austria by the maharajas around 1900. There was a collection of 32, each of which sold for more than pounds 1,000, and some at double the pre-sale estimate. One box with a chiffon-draped girl on a sofa looking at herself in a mirror reached pounds 2,640.

The Yuvraj of Dranghadhara, a mini-maharaja who has recently joined Sotheby's staff, tells me that a friend of his inherited 600 similar naughty boxes and now hopes to rescue his ancestral palace on the proceeds of their sale.

(Photograph omitted)