So there are several things wrong with this question to begin with: the assumption of a monolithic cultural in both periods and the assumption that "sexuality is so repressed."

I think it is far to assume a certain level of repression and freedom in every given cultural setting though the ways and avenues for this to take place may be different. I think India stands as an example where same sex relationships and gender variance are permitted through culturally prescribed avenues (such as "hijra" traditions or the traditions of ritualized male friendships or "miths"). India is a good example where there is sexual freedom to the extent that this behavior/discussion does not extent that it does not interfere with public duties, enter into discourse, or take the shape of subjective and fixed identities (with perhaps exception of Hijras). There is a large percentage of men in India who have had same sex relationships; the difference between India, and say America, is that in India this is acceptable so long as these men do not identify publicly and, perhaps more importantly, politically as "gay men." Indeed, the term "men who have sex with men" arose because many of these men reject such labeling, which comes from Eurocentric understanding of sexuality as fixed and limited to a set of prescribed behaviors concerning attraction to certain genders. Men often describe their relationships to other men not necessarily as sexual but as "masti," meaning fun, that serves to help "release" the build of male sexual energy, something that is also consider "natural" to men's sexuality.

Comments concerning the impact of colonialism are important in this discussion. The British Raj did indeed impose Victorian standards of sexuality through law, policy, etc. and this no doubt has left an impact on the nation. However, to say that this completely overwrote or replaced older, pre-colonial understandings of sexuality is an overstatement. The current statute outlawing sodomy was gifted to India by none other than the British. Portrayals of Indian men, by the British and by Gandhi, also to some extent also emasculated the imagine of the Indian man and the reaction to which can be seen in hyper-masculinized Hindu nationalist portrayals of the nation, of Ram, of Hinduism, etc.

Additionally, imaging the production of the Kama Sutra with a cultural that is "sexually liberal" enough to have carvings of sex is also problematic. Tantric and the antinomian traditions that were developing around the same time weren't not necessarily wide spread teachings that represented or even concerned the majority of population at the time. Indeed, even the fact that the Sutra was a sutra (that is to suggest a text to be read) suggests the amount of people who had access to it were far less than the majority of the population (since they would have to be literate.) Many tantric practices were esoteric, secret, and while they did affect and change many cultures, rituals, etc. it's not fair to assume that any given text represents the entire continent of India's understanding of sexuality at that time.

Source - I am a researcher who studies sexual and gender minorities in South Asia.

Edit - A lot of people are getting crabby about the sources. The stuff about same sex sexuality can be sourced to a lot of different literature. Try starting with Shivananda Khan's work, Paul Boyce, Akshay Khan, Subir Kole, Wendy Doniger (for Hinduism)... A lot of this is also supported by my own field work.

As a parallel question, I would be interested in people explaining how much influence, if any, that Victorian moral influence had over South Asia during the period of British rule.

First of all, one would have to determine at which level the Hindu culture is or isn't prudish or repressed about sexual maters. The Kama Sutra and the Khajuharo carvings where products of the Hindu culture, is the Hindu culture that different now than it was in 1000 AD when the carvings where made or in 300 BC when the Kama was writen? Probably different but i would like to know at which extend.

If we can prove that the relation to sexual maters have changed significantly over the course of the last 2000 years, and at which point did it changed the most, i guess our best bet would be during the 16th century with the Mughal conquest.

The Mughals Emperors ruled over India from the 16th century until the United-Kingdom took their place in the 19th century. They where Muslim rulers and their culture changed the whole land forever as proved by the Taj Mahal, a perfect example of Mughal architecture, being the most known landmark in India. A stricter Muslim approach must have an influence on the sexual behaviors of the Hindu majority. That would explain the change of attitude over those few centuries.

Then again, some of the extreme sexual taboos and traditions of India are from the Muslim Indians, in which case the parallel to the Kama and the Khajuharo carvings is not very relevant since they are from Hindu culture.

Indian culture is not 'a' culture. Its like saying European culture is a culture. For starters there are 22 languages spoken in the country which are all different. The languages in the northern parts of the country have some similarities but the southern languages are completely alien to the northern ones.

Source: http://en.wikipedia.org/wiki/Languages_of_India

Each state within the country is different like how France is different from Germany in Europe with their own rivalries and battles in the past. So it can't really be called 'a' culture.

The Kama Sutra, although it uses the name sutra isn't really regarded as an authoritative spiritual text in the way that the Yoga Sutras of Patanjali or the Buddhist sutras are. It's much more modern than the truly influential vedic texts and afaik was relatively unknown in India. I think the notoriety of the Kama Sutra was much more a symptom of the interest from orientalist westerners than in the native culture.

Historically, if you look the mythology of Hinduism as well as the folk-historical texts then it seems sexuality is regarded quite conservatively. Chastity is seen as a great virtue among women and there are often tales illustrating the devotion of women to protecting their virtue and the purity of their commitment to the husband, perhaps the most obvious being the Ramayana, although the great battle of Kurukshetra that one of the most central of all the hindu texts (the Bhagavat Gita in the Mahabharata), also in part springs from an insult given to the chastity of a woman.

The most ancient texts like the devi bhagvat have a very strange, mystical approach to sex. It is difficult to relate to from the modern viewpoint and it isn't eroticism in the way that Kama Sutra is. It deals with semi mythological beings and while they engage in sexual activity (often like the greeks, falling for mortal women) it's never the act that is important but the consequences of it. Sometimes tragic, sometimes part creation myth, sometimes altogether puzzling (to me anyway, these are really old stories. They're a bit hard to relate to sometimes.)

So the idea that the Kama Sutra or Khajuraho temple carvings represent some period of Indian development is basically flat out wrong. They are both really unrelated and relatively obscure cultural anomalies. This question is like finding some strange medieval Gnostic sect and asking how modern Europe had evolved from that. There is a sort of spiritualism with erotic elements called Tantrika that has some of what you might be thinking about, but even that is relatively obscure (and of more interest to californian hippies than Hindus generally).