Ahmedabad: The Indian currency’s relentless gains against the dollar and an economic slowdown in the US have taken the shine out of India’s diamond polishing business, according to representatives of the industry.
Lower margins: Forever Precious Jewellery and Diamonds managing director Jai Begani (right) at his showroom in Ahmedabad. Begani says the rising price of gold has also hurt demand for diamond jewellery.
Pravin Nanavaty, a diamond trader from Surat and a member of the Gujarat Hira Bourse, an association of diamond traders from the state, further claimed that around 2,000 small diamond polishing units in Surat, the city in South Gujarat that is the hub of India’s diamond polishing industry, had downed shutters, forcing their more than 100,000 employees to move to jobs in agriculture or textile mills, or return to their villages.
Nanavaty said that some diamond polishing units were beginning to focus on the domestic market to insulate themselves from the slowdown in the US. According to Nanavaty, the US had accounted for 60% of the Rs74,000 crore worth of diamonds exported from India in 2006-07, but in the first eight months of 2007-08, there has been a reduction of almost 50% in exports to that country compared with the corresponding period of the previous year.
The president of industry body Gem and Jewellery Export Promotion Council (GJEPC), Sanjay Kothari, too said India’s exports to the US had been hit. “We will have to wait for Christmas in the US when things can improve, but the export scene is definitely not looking good at this stage,” he said.
Nanavati estimates that the quantum of diamond exports from India could decline by more than 70%.
The rupee has appreciated 10.61% against the dollar since the beginning of the year (till 18 December) and foreign exchange dealers expect it to appreciate further, adding to the woes of the diamond traders. When the local currency appreciates, the income of exporters in rupee terms goes down.
Over a million Indians in Surat, Ahmedabad and Bhavnagar in Gurajat and in parts of Mumbai, polish diamonds and make jewellery. India enjoys a monopoly in this business with 10 out of 12 diamonds in circulation across the world being polished here and Surat alone accounts for 90% of this business. Surat houses 10,000 small polishing units and each of them employs around 50-100 people. The lack of orders, low availability of raw material and rising competition from China and Africa are forcing some of these units to shut down.
“The health of big diamond units employing up to 2,000 people each too is not looking good,” said Nanavaty.
Kothari is particularly concerned about the fact that the share of polished diamonds and jewellery as a percentage of total diamond exports is going down.
“The trade is taking benefit of zero-import duty on diamonds (and is) exporting roughs across the world. We have imported $3 billion worth of roughs this year,” he said. The roughs are raw diamonds mined from various diamond mines across the globe. Units import them paying zero duty and then export them with marginal or no value addition, and manage to make money from playing the margins or from incentives the government gives exporters.
Jai Begani, managing director, Forever Precious Jewellery & Diamonds Ltd, said the rising price of gold had added to the problem. The price of gold has risen from $580-600 per ounce last year to more than $800 per ounce and this, according to him, has hurt demand for diamond jewellery. “The margins in diamond polishing are just 10-12% and with an appreciating rupee, only the units with economies of scale can survive. The demand for jewellery has slowed down by 25-30%,” he added. A 6.5% import duty on diamond jewellery imposed by the US has also added to the woes of Indian exporters as this duty is not applicable to countries such as Thailand.
Aagam Sanghvi, director of Sanghvi Diamonds, with an office in New York, said more than a dozen Indian diamond companies have closed down their US offices. According to him, US buyers are no longer looking for the cheapest option anymore.
“They want the latest in global design and not necessarily cheap designs which India produces,” he added.
Nanavaty and Kothari said it is time Indian diamond companies looked at the country’s growing domestic market. “The local market has been growing 100% for three years now and with no worry on currency fluctuations, it is easier to spread (business) in India. Besides, the risk in the local market is spread across innumerable small players while the global market is dominated by a few big players,” Kothari said.