If in 1992 you had Rs 11 lakh (Rs 1.1 million) to invest, there were few places you would risk it. You could, of course, put it in gold, in which case you wouldn't have lost anything, but you wouldn't have made anything either (given inflation) with returns under Rs 30 lakh. Land or property might have been a better option.

In Delhi, if you were conservative, you could have put the Rs 11 lakh in a reasonable colony like Greater Kailash, where it would fetch a market value of Rs 45 lakh (Rs 4.5 million) today; or in Gurgaon where, because of the buoyant real estate market you could expect to be paid an eminently respectable Rs 1.5 crore (Rs 15 million) for it.

The share market was the other option, and if you were lucky enough to have acquired Infosys [Get Quote] shares, you could probably retire on the returns - a humungous 50-60 times, with a value of between Rs 5.5-6 crore (Rs 55-60 million). One person then, who decided to risk that investment in buying a painting from a Sotheby's auction was thought maverick. Perhaps passionate about art, true  - but an investor? Nah, that didn't make sense.

On the first day of this month, therefore, when that same painting (Amrita Sher-gil's Village Scene) fetched auction house Osian's Rs 6.9 crore (Rs 69 million), the buyer, Nand Khemka, made history for the highest price any painting has fetched in India. But already punters are saying Khemka's bid is only the start of a price blitzkrieg that will swamp the Indian art industry.

When art will be valued far higher than the buildings in which it is housed. When auction house maestro Neville Tuli can suggest that "in the last five years, [M F] Husain has created more value than the entire house of Tata". Er? "He's one man, his resource is one hand, and there's no other infrastructure at his disposal," argues Tuli, "and look at the wealth he's created with that."

We'll come back to that in a bit, but there's no gainsaying that the value of the Indian art market has been rapidly multiplying and, by Bodhi Art estimates, will probably cross Rs 2,000 crore (Rs 20 billion) in 2006.

Certainly, Indian art has never had as many highs as last year alone, when an canvas by Tyeb Mehta fetched over $1 million in the international market. And where contemporary artists like Atul Dodiya and Anju Dodiya have crossed or are hovering around the critical Rs 1 crore (Rs 10 million) benchmark.

At that price point, these young artists have already scaled beyond the values of the masters. And according to a Bodhi Art study, their prices, month on month, have been increasing by 20.1 per cent. That's every month. No wonder the market is in a tizzy. There are ugly rumours of rigging prices. Of manipulating saleable artists. Of art funds creating false value for their investors.

"Really?" laughs Dinesh Vazirani of Saffronart. Art funds, he says, are just one group (among a market that consists of painters, collectors, gallerists, dealers and investors) of structured investors who've pooled in their capital, and appear in the public eye because they're buying aggressively, and therefore noticeably, at auctions. For a market that's the size of Rs 1,500 crore (Rs 15 billion) currently, what impact can funds of $10 million or $15 million at most, make?"

Even as speculation of trade-offs continue to do the rounds and gallerists have taken to guarding their properties (read artists) in vault-like proximity (they'd chain them to garrots if they could), there's consternation, almost fear in the market.

Perhaps because, beyond their wildest expectations, the market has slipped frighteningly out of even their grasp. There's a new collector on the rounds, but neither gallerists nor dealers know his identity beyond the fact that he's Indian (and no longer the entity identified simply as the NRI), wealthy, and willing to spend huge sums on acquiring art by means fair or foul. For speculation or passion? For investment or acquisition? For manipulation or genuine appreciation? Those answers at least aren't forthcoming for now.

But beyond the hype, beyond the surprise over the prices, there are some very sound reasons for why these prices are escalating faster than a rocket in orbit. To begin with, there's the basic premise on which almost everyone is agreed - that art has long been undervalued in India.

With increasing visibility in the West, and greater access to more mature markets, this has now sought to correct itself. "It's establishing itself at parity with other competitive countries like China," suggests Vazirani.

But a spokesperson at Bodhi Art is quick to rubbish that. "Indian art isn't about Chinese bamboos and Japanese cherry blossoms," he laughs derisively; "it has depth and a limitless spectrum."

And points the responsibility for the boom in Indian art to an unlikely person - Narayana Murthy. "He made us proud to be Indian," he says, which, as Saffronart's Vazirani points out, has resulted in "those Indians who're generating a lot of wealth wanting to acquire art, and while it's still undervalued".

The result has been "too much money chasing art", suggests Anand of the Delhi Art Gallery (collector, gallerist and dealer), who in the past would buy out entire studios. But in the space of a few months that has changed, with traditional buyers like entrepreneur and art columnist Nitin Bhayana suggesting "even wealthy people will now find it difficult to buy their favourite painters".

Anand appears distressed about the  "status value of buying art", something Bodhi Arts implies is due to the "herd mentality of society", but Neville Tuli insists, "Today, the market is genuine." Even so, there's no getting away from the fact that a large number of younger collectors are probably in it for only its investment value.

Gallerists agree that visitors continually harangue them for works of value; curator Pooja Sood of Apeejay Media Gallery is scared artists' studios could turn into ateliers or "factories of art", she sighs unhappily.

There are reasons for that apprehension, and price is one of them. Contemporary artists who sold for under Rs 100,000 have now fetched Rs 20 lakh (Rs 2 million) at an auction, and routinely sell for half that from their studios. The number of works coming out has increased sharply.

"What's the future of artists who have only done three-four years of work before commanding these prices?" asks a worried Anand. "There's a very big risk collectors are taking. They're paying prices that are too high for reasons that are not rational."

Then there's the lack of the information process, the necessary systems to separate the very good from the good, and the good from the not-so-good.

"The market needs infrastructure," insists Tuli. Unlike in more sophisticated markets, there is little by way of information, few critics, few curators, no indices and, till recently at least, the market was largely an operation of the black economy.

That at least has changed. And though the Chinese art market is still ahead of India's, even that could change in the course of this year.

Already, the highest prices for young contemporaries is higher than those for comparable Chinese artists. And the market for the likes of Atul Dodiya, Anju Dodiya, Subodh Gupta, Jagannath Panda, Jitish Kallat, Shibu Natesan, Manish Pushkale and the like - names mainstream India is still unfamilar with - could scorch the international marquee with a reach the modernists never enjoyed.

If Tuli is jubilant at the "aesthetic development of a lacking historical process", others are concerned about whether chasing prices will lead to better art. "There's no doubt that it is the quality of an artist's work that will determine prices," says Vazirani, then cautions, "But there is also the matter of the quality of the bidder at auctions."

Most are dismissive about auction peaks as an aberration - it is, after all, a contest between two or more collectors at the heat of the movement, but artists are reconciled to the fact that such a public battle for their works helps push up the average levels at which they sell from their studios.

Nor are these prices likely to level off any time soon. "This speed is very, very dangerous," cautions Bodhi Art, "but the world demand far outstrips supply. There's awesome money chasing Indian art."