The Damien Hirst of Delhi, The Guardian

India's economy is booming - and so is its art world. Its enfant terrible tells Randeep Ramesh about crazy prices and the uses of cow dung. Through the haze of frontier dust where New Delhi fades into scrub and grazing land lies the low-slung, white-walled home of the country's most coveted conceptual art. Inside the workshop, a sculpture of huge brass pots hangs from the ceiling. On the wall is a shimmering canvas of a stainless steel urn. Nearby sits a 5ft metal bucket. The works' creator is Subodh Gupta, the current darling of the booming Indian modern art market. Like a subcontinental version of Marcel Duchamp, who exhibited a public urinal in the early 20th century, Gupta takes everyday objects as "ready-made art". Pots, pans and squat stools from his childhood all recall the artist's humble, rural roots.

"All these things were part of the way I grew up. They are used in the rituals and ceremonies that were part of my childhood. Indians either remember them from their youth, or they want to remember them."

Perhaps most striking to western eyes is his use of cow dung. The 42-year-old has made installations out of manure patties, kitchen fuel for millions of Indian country homes, and painted with dung à la Chris Ofili. In a nine-minute video, Pure, the artist stands covered in thick layer of bovine excreta that is slowly hosed off in a shower. Gupta says he wanted to play with meanings of "purity". "In Indian villages, cow shit is used for spiritual cleaning like an antiseptic. But this is not true of today's [Indian] cities. I wanted to show that."

Despite dwelling on domestic themes, the artist has become a mainstay of the big international art fairs and has exhibited in the Venice Biennale, London's Frieze and shows in Moscow, Miami, Lille and Japan. As a sculptor, painter, installation-maker and video producer, Gupta is seen as the enfant terrible of the Indian art scene, a Damien Hirst of New Delhi. Last year, his work Across Seven Seas, a room-sized airport conveyor belt cast in aluminium, topped with 30 metal suitcases and bundles, sold for £550,000 to a German collector at the Basel art fair.

Perhaps Gupta's most famous fan is François Pinault, the French billionaire and biggest shareholder in Christie's, who bought a one-tonne skull crafted out of aluminium pots and pans, after one of his curators spotted it in a remarkable show at Paris's Eglise Saint-Bernard church last October.

Gupta says the monumental work, entitled A Very Hungry God, was a "one-off, unique". "I cannot reproduce that. The kitchen stuff is a phase I am going through, but a piece like that is not going to be done again," he says.

The British public have got a chance to sample Gupta's art at Gateshead's Baltic gallery, with a newly installed sculpture of a "kitchen city", which sees a stainless-steel sushi belt transporting metal bowls around a landscape of cooking utensils. Built in Singapore for $100,000, the installation is so large it took five people to set it up.

Gupta is among a generation of young Indian artists whose commentary tells of a country on the move, fuelled by boiling economic growth and a more materialistic mindset. Despite reflecting these changes in their art, the new generation of painters and sculptors are themselves part of the boom.

Last September, Christie's modern Indian art auction saw record sales of almost $18m (£9.5m). The recent spurt in prices has seen even newcomers such as painter Surendran Nair picking up $250,000 for a work.

Just who is buying the art reveals a novel trend. Indian-born but foreign-based Indians, especially those who are self-made, see the new art as a way of reconfirming their ethnic identity and as an opportunity to move up into the rarefied world of elitist arts. The result is rapid inflation in art prices.

Rajiv Chaudhri, a New York-based Indian hedge-fund manager who stunned a crowd at Christie's in late 2005, by paying $1.6m for a painting by the 80-year-old Indian artist Tyeb Mehta. The work, Mahisasura, a 1997 rendering of the buffalo-demon of Hindu mythology, was the first time a contemporary Indian painting had crossed the million-dollar mark.

The new valuations are not just down to new Indian money and a wealthy Indian diaspora intent on rediscovering their heritage, but also to the internet. A number of online auctions have connected once-obscure artists with a hungry audience.

"The pioneer of this model is Saffron- art.com, which runs weekend auctions for the NRI [non-resident Indian] community who buy with their ears, not their eyes," says Peter Nagy, who left New York for New Delhi a decade ago to start up Nature Morte art gallery.

"These guys come to India once or twice a year, but don't have time to buy art. So they sit in their computer rooms in New Jersey, pushing up prices in New Delhi. Right now, prices are going through the ceiling."

Saffronart.com burst on to the scene with a $1.5m sale of a work by Francis Newton Souza, one of the older generation of Indian painters, in December 2005.

What we are seeing, says Yamini Mehta, head of Christie's modern and contemporary Indian art division, is a pattern of sales similar to the other ancient, large-scale Asian culture: China. Chinese art grew from a curio item in auctions in the 80s to the point where Chinese painters now sell work routinely for half a million dollars.

"We are at the beginning of Indian art. Chinese art has been in western galleries for a long time," says Mehta. She points out that the Indian auctions a decade ago yielded just $800,000. "This year the figure is $42m. India is more diverse than China. But he prices are definitely following [the same] course."

Subodh Gupta owes his rise in part to Pierre Huber, a Geneva gallery-owner who spotted that Chinese work was the next big thing in contemporary art. He also saw the potential for Indian art and Gupta, and quickly signed up the young artist.

Mehta says what is remarkable about the Indian market is that you can still pick up bargains. "You cannot buy the best Picasso at the moment because it is in a private collection. But you can pick up a MF Hussain because private collectors are only just starting."

There are signs that a new crop of visual art museums is appearing in India's new metropolises, designed by Indian collectors who model themselves on cultural impresarios such as Charles Saatchi.

More than $500m is expected to flow into the market when the half-dozen private museums currently being built by India's new elite start acquiring work. These new centres will preserve and present Indian contemporary art projects.

In a warehouse on the edge of Delhi's southern rim is the Devi Foundation, which aims to replicate New York's temple of modern art, the Dia Foundation. The brainchild of mother-and-son team Lekha and Anupam Poddar, who also own designer hotels, the foundation aims to become India's main showcase for art.

Gupta's work litters the Poddars' collection: they own a life-sized, pink fibreglass statue of a grazing cow, and a huge globe made of milk cans. They have also commissioned a cow-dung painting.

"These are incredibly sophisticated people who have travelled all over the world and educated themselves about contemporary art in Europe and the US," says Nagy, who has also backed Gupta's creations. "They came back here and realised such a talent like Subodh was just doing the craziest shit. It is both visionary and a no-brainer".