If you can't clean up the painted edge, you could always add a 1x3 piece of wood as molding. You can even carry it up to the ceiling to frame that wallpaper. I don't see that paint color in the wallpaper, or maybe it's a lighter version of the flower centers. Maybe stencil on a design using the darker color, or another color from the wallpaper to help tie it together. Then narrow floating shelves or vertical frames or something in the painted areas it you feel you need it. Maybe turn the bed around so the wallpaper is the headboard.

If I understand the seasons in India correctly, you have already been through the rainy season. Don't wait until the next rainy season to get the problem with your drainage fixed. Now will probably be the ideal time to get it fixed. Please get someone who will tell you what to do and then have the work done. The paint on that wall in your beautiful home will keep coming off!

@Cornerstone design studio: Apologies for making big post; thought that more info will help. @Rupal ji, If it sounds like I dont need any changes; my apologies for that. Let me put it in short,"I am looking for options that give modern facilities without leaving good things from old charm/ comforts. " Thanks for the straight forward comments. I shall try to edit my original post to make it simpler and that looks open to new ideas.

I feel partitions are not needed. You already have too much for the space. Adding a partition will shrink the space further. The simplistic solution, you do not wish to discard any furniture would be to paint all the walls in lighter pastles. And use some wall painting frames to highlight certain walls.