Indian diamond Industry: From a rough patch to a glittering performance

The Indian diamond industry is deemed to be strongest in terms of its production and processing capabilities. However, given the volatility of the  sector as exposed by the COVID-19 pandemic, the diamond industry must focus on capacity-building measures through policy support, investments, knowledge and capacity building.

• India is reckoned as the world’s largest cutting and polishing center for diamonds. This is attributed to factors such as the easy availability of high skilled labour, cutting-edge technology, and lower costs of operation. 
• While the pandemic dimmed the shimmer of this sector, export performance was already bleak before the onset of the pandemic due to a host of internal and external factors.
• During FY 2020-21, exports of gems and jewelry were registered at US$ 25.30 billion as compared to US$ 35.37 billion in FY19-20. Total exports of “cut & polished diamonds” from India fell from US$ 18.66 billion to US$ 16.4 billion during FY2020-21.
• As per CRISIL, diamond exports are expected to experience a growth rate of 20% in revenue and cross the US$ 20 billion mark by this fiscal year.

Source: Shutterstock

India is the world’s largest cutting and polishing center for diamonds, accounting for over 90% of polished diamond manufacturing globally. This is attributed to factors such as the easy availability of high skilled labour, cutting-edge technology, and lower costs involved. It contributed around 19% share in the world’s total exports of diamonds during 2019 and became the top exporting nation for cut & polished diamonds across the globe, according to the ITC trade map (HS group: diamonds worked or non worked).

Even before the outbreak of COVID-19, however, the Indian diamond industry was facing a slump and going through a slow phase due to various domestic and international issues. These included an increase in import duty on precious stones viz. polished diamonds & coloured gemstones, tightening of lending terms by banks, stringent customs inspection procedures, torpid import demand and withdrawal of GSP benefit by the USA, etc. As per GJEPC statistics, India’s export figures of cut & polished diamonds started stumbling way before the announcement of lockdown in the country, declining by 19.38% YoY. The export share for top destinations such as the US (-16.25%), Hong Kong (-32.06%), Belgium (-15.54%) etc. reduced drastically in the FY 2019-20 in comparison to FY 2018-19.

The Indian diamond industry & COVID-19 blues

The COVID-19 pandemic taxed all spheres of life equally all around the globe and trade activities in the gems and jewelry segment are no exception. The global supply chains were heavily disrupted on account of abrupt nationwide lockdowns in different parts of the world, demand-side constraints, limited freight movement, dip in the purchase of luxury items and unavailability of human resources etc. These effects trickled down to India.

All the stakeholders involved in the Indian diamond industry including miners, manufacturers, wholesalers, retailers in the industry were affected, especially industrial rural workers. Such workers had no other option but to migrate back to their villages in absence of any steady source of income because of factory shutdowns and lurking fear of COVID-infection during the first wave of COVID-19.

The total exports of “cut & polished diamonds” from India fell from US$ 18.66 billion to US$ 16.4 billion during FY 2020-21, registering a Y-o-Y decline of 12.13% (GJEPC, 2021). Exports of uncut and polished diamonds suffered a steep fall of approximately 47% Y-o-Y during April-July 2020, as customs and all other operations were shut due to a complete lockdown in the country. The Indian diamond industry took a hit in the worst possible way as its two most important diamond cutting and polishing centers i.e., Surat & Mumbai experienced a massive surge in COVID cases during both the first & second waves.

In addition, the targeted markets-cum-bigger exporting destinations i.e., Hong Kong (-64.10%), Turkey (-94.57%) and Japan (18.02%), US (6.35%), etc. for Indian exporters were also heavily impacted by the coronavirus, leading to a decrease in import demand from India.

Reviving the lost sheen

After suffering during the entire first quarter of FY 2019-20, exports from India’s diamond industry started making a slow comeback, even as Y-o-Y growth remained negative for the next three quarters. Exports rose from US$ 1.22 bn in August 2020 to US$ 2.16 bn in March 2021 in response to the opening of the economy in a phased manner, resumption in manufacturing and recovery of export markets from the pandemic. Thus, there was an increase in demand from destinations such as China, South Africa, Australia, and Saudi Arabia.

With the amount of uncertainty revolving around the coronavirus situation, it was apprehended that recovery of gems & jewellery sector will be slow and might not reach pre-COVID levels in the near term. However, G&J exports increased by 6.04% to US$ 12.55 billion during April – July 2021 as compared to pre-COVID levels of exports of US$ 11.84 billion registered during April-July 2019; reflecting that exports were stable and global import demand was intact amid the second wave of COVID-19. Gems & Jewellery exports rose aggressively by 223.87 % during April–July 2021 as compared to US$ 3.88 billion recorded during the first wave of COVID and nationwide lockdown. Vipul Shah, CEO, Asian Star, a diamond exporting firm said:

Last year, there was a global lockdown due to the Covid-induced pandemic in the April-June period. That impacted our exports. But this fiscal, the situation has changed.

The total exports of cut & polished diamonds stood at US$ 8.52 billion during April –July 2021. This implied growth in the exports by India’s diamond industry of more than 200% as compared to US$ 2.72 billion amidst the first lockdown and 27% growth above pre-pandemic level, vis-à-vis US$ 6.7 billion during April-July 2020. The Multiple factors were involved, including pent up demand & revenge buying in key export markets like the USA, China and Hong Kong, restocking & management of rough diamonds inventory, mass inoculation drives, rise in purchasing power, and the upcoming festive season. As per CRISIL, diamond exports are expected to experience a growth rate of 20% in revenue and will cross the US$ 20 billion mark by this fiscal year on account of the forthcoming festive season in domestic and overseas markets, and correction in the market during 2^nd quarter of this fiscal year. The agency notes:

The pandemic has also improved the management of rough diamond inventory. Earlier, prices of roughs moved sharply versus polished diamonds, leading to stocking-up of the former. The pandemic then led to a correction in the inventory of roughs last fiscal, and this trend continues. Diamantaires now tend to purchase roughs when there is visibility in polished-diamond sales.

Gem and Jewellery Gross Exports

Commodities	April-June 2019	April-June 2020	April-June 2021 (P)	% growth/ decline w.r.t pre-COVID level 2019/2021
Cut & Pol Diamonds	5,203.44	1,801.68	6,261.85	20.34
Pol. Lab-Grown Syn. Diamonds	86.36	38.99	261.05	202.29
Coloured Gemstones	85.61	16.17	60.70	-29.1
Pol. Synthetic Stone	0.03	0.03	0.17	463.91
Gold Jewellery	2,869.22	172.08	1,734.20	-39.56
Plain Gold Jewellery	2,177.52	57.89	624.32	-71.33
Studded Gold Jewellery	691.70	114.19	1,109.87	60.46
Silver Jewellery	246	322.61	627.42	155.05
Platinum Jewellery	2.02	0.48	4.53	124.28
Imitation Jewellery	3.57	1.68	8.74	145.17
Articles of Gold, Silver & others	73.81	55.63	9.29	-87.41
Others	350.78	95.23	214.44	-38.87
Gross Exports	8920.83	2504.58	9182.38	2.93
Return Consignment	1,953.25	263.40	1,775.35	-9.11
Net Exports	6,967.58	2,241.18	7,407.03	6.31

Source: GJEPC Analysis (all figures in US$ mn)

Paving the road to a dazzling future …

The Indian diamond industry is deemed to be strongest in terms of its production and processing capabilities. However, given the volatility of the diamond sector as exposed by the COVID-19 pandemic, it is better to remain prepared. Suvankar Sen, Director, Senco Gold and Convener, SEZ Committe, GJEPC, opines that aligning the gems & jewelry production facilities situated in SEZs with some of the initiatives of the Indian government such as the Aatma Nirbhar Bharat & the One District One Product Programme is going to have promising results. Agreeing that the government is a major enabler in driving this sector towards success, he suggests that although there are a lot of regulations to promote FDI in the country, there must be tie-ups with foreign companies in terms of technology developments and advancements that India needs to make with regards to the sector. He also adds:

At present, the import duty has to be paid to import raw materials into various free trade warehouse zones. The government must consider allowing their duty-free imports to enable greater liquidity into the sector. There are also some exit barriers that crop up during the transfer of property and assets. A lot of companies are reluctant to dispose of their redundant assets. These issues create problems that must be addressed.

Some of the recent measures suggested by the GJEPC are aimed at reducing dependency of bigger consumer markets like Hong Kong and China. This is because these countries have been traditionally playing the role of intermediaries by sourcing various gem and jewelry products from India and identifying key export destinations of these two countries. The industry back home should then target these countries directly for diamond exports.

Other measures that can help streamline logistical operations at the domestic level are the provision of suitable infrastructure such as warehouses, overseas postal services and efficient toll collection services etc. ensuring country-wide smoother trade facilitation. Lastly, the diamond industry must focus on capacity-building measures such as allowing reverse job work policy by allowing investments into the sector, development of knowledge centers, and training of workers.