"Our film industry is a contracting market, contrary to the belief that it is an emerging market. Cinema which used to be for the masses has now become a medium for the elite. The designer clothes, the flashiness in films is also the reason that the mass is not so much attached to films," Kapur said, while speaking on the topic of 100 years of Indian cinema at the CII Media and Entertainment Summit, 2012.
The 66-year-old rose to international fame and popularity with his Hindi film "Bandit Queen" based upon the life of Phoolan Devi, an infamous Indian outlaw.
The director also said that the main reason for the decline is television and the new media, the Internet.
"When we look at the statistics, we will see that the number of cinema goers is going down and the ticket prices are going up. The masses which is 80 per cent of the population is addicted to TV because it is cheaper," he said
Kapur also raised doubts about the survival of cinema because of lack of infrastructure.
"We have just 16,000 theatres in India and there are so many filmmakers. How will we cater to that? Cinema is both business and art. As a business it will survive but as an art I am not sure," he added.
The director said that he feels regional cinema is doing better than Hindi cinema because they have not lost their identity.
"Regional cinema is doing much better that Hindi cinema, in terms of content and story. They are doing well because they still have held on to their identity.
I feel that in the last 10 years, Indian cinema has lost its identity. I recently saw "Makkhi" and I was so impressed, be it technology, story. It was no less than a Hollywood superhero film but then again it was a Telugu movie not in Hindi language," Kapur said.
The filmmaker, whose historical biopics of Queen Elizabeth- "Elizabeth" and its sequel "The Golden Age", garnered Oscar nominations, said that Indian films are not far behind Hollywood movies, they only lack in terms of technology.
"We keep comparing our film to Hollywood movies. It is not that we don't make great films or don't tell great stories. What we lack in is technology, in production design. The problem is the world is shifting beneath us," Kapur said.
"We have to merge, we cannot isolate ourself from the world. If we want our films to reach main stream Hollywood, we have to improve our infrastructure," he added.