Innovation helps Indian diamond industry overcome challenges (2023)

History reveals that the Indian diamond industry has seen many ups and downs, but the resilient sector has always returned stronger, albeit a little shaken! Some 90 per cent of the world's diamonds are cut and polished in Surat and elsewhere in the western state of Gujarat-India. This time around too has not been very different. The industry was shaken but not broken by the geopolitical situation that left India’s cutting & polishing sector impacted by the rough diamond shortage.

However, at present, the diamond manufacturing industry has returned, like the phoenix, to its usual buzzling self, thanks to some innovations by the ever-adapting Indian diamond industry.

But, the initial months, after Ukraine and the Russian geopolitical issue leading to the Western sanctions, the mining giant ALROSA, which traditionally accounted for over a third of India's rough diamonds, stopped supply completely. This hit the small diamond manufacturing units across the country, while the Surat sector survived because it manufactured mostly larger stones. But many smaller units cutting and polishing melees in Surat had to shut down due to a shortage of small rough diamonds. Most of the two million workers polishing diamonds in the manufacturing centres had to go through severe hardship, as the units faced rough shortage situation as ALROSA supplied mostly small rough diamonds. The Western sanctions on Russia, India's biggest supplier of small rough diamonds resulted in not enough work for workers who had migrated from across Gujarat to c&p centres. Gujarat's diamond industry alone employs nearly 1.5 million workers. While the local trade union estimated that between 30,000 and 50,000 diamond workers in Surat have lost their jobs, traders in Surat openly trade diamonds worth millions of dollars on the streets each day, carrying the precious gems in paper wrappings.

Dinesh Navadiya, the Gems and Jewellery Export Promotion Council's regional chairman opined that the Russia-Ukraine conflict adversely affected the livelihood of hundreds of thousands of workers of the diamond industry in Gujarat, especially in rural parts of Saurashtra region where many units import small-size diamonds from Russia for processing and polishing.

The state's diamond industry employs nearly 1.5 million workers. Due to the shortage of supply of small-size rough diamonds from Russia, businessmen in Gujarat are forced to buy the raw material from African countries and other places, affecting their profits. Hence, the diamond units in the state have curtailed the working hours of their workers and polishers, thus impacting their livelihood, he said. The processing of big-size diamonds is mainly carried out at units in the state's Surat city.

The US, where 70 per cent of the cut and polished diamonds are exported from India, has imposed a ban on Russian companies. Navadiya said a few large companies in the US have already sent them emails, saying they will not purchase goods of Russian-origin. Hence, this adversely affected the diamond industry workers in Gujarat, mainly in Bhavnagar, Rajkot, Amreli and Junagadh districts of Saurashtra as well as in some northern parts of the state. “Out of all the cut and polished diamonds processed in Gujarat, 60 per cent are of Russian-origin, most of them being small-size diamonds,” said Navadiya.

Some manufacturing companies in Surat claimed that Russia accounted for half the rough diamonds that their firm turns into dazzling gems using state-of-the-art scanning and laser-cutting machines. But supply had shrunk to a tenth of what it was in the months since Western sanctions cut Russia off from the SWIFT international payments network in March. As companies could not get goods from Russia because of the payments system, they tried to bridge the gap with supplies from South Africa and Ghana. The $18-billion diamond trade between Russia and India has now been hit drastically.

But the problem did not stop with rough supply alone. Exporters said that demand from the United States and Europe also nosedived in recent months as many companies like Tiffany & Co, Chopard, Pandora etc. refused to buy diamonds sourced from Russia.

But, the ‘never-say-die’ Surat was quick to use the existing infrastructure of their manufacturing units and workers to cut & polish lab-grown diamonds (LGDs). Though production and manufacturing of LGDs existed earlier as well, many more units entered LGD cutting and polishing as a full-fledged business. So, LGDs have come to the rescue of thousands of workers who were asked to go on 15-day leave on 16th May by the natural diamond cutting and polishing units in Surat due to a supply shortage of rough diamonds.

The natural diamond cutting and polishing units have converted 20 per cent of their production to lab-grown diamonds in absence of natural rough diamonds from Russian miner ALROSA and have absorbed these workers. The natural diamond units have done so due to the rising demand for lab-grown diamonds in the US. The US, which is reeling under inflationary pressure, is asking for lab-grown diamonds from India as it is cheaper by 40 per cent compared to natural diamonds. Exports of lab-grown diamonds have increased by 108.27 per cent in FY22 as compared to FY21.

As of now the situation in Surat has improved, and alongside the natural diamond cutting and polishing, a lot of lab-grown diamond manufacturing has also picked up. Some of the units that are into natural diamond cutting and polishing have converted 20-30 per cent of their production into lab-grown diamonds, generating jobs for the diamond workers in Surat.

Currently, India contributes around 15% to the global production of lab-grown diamonds. According to media reports, new LGD units too are coming up in Surat and new employment is being created. The Indian diamond trade has also urged the commerce minister to bring lab-grown diamonds under the ‘production-linked incentive’ scheme as it has an export potential of Rs 40,000 crore within the next five years.

Colin Shah, Chairman of The Gem & Jewellery Export Promotion Council said “Natural diamonds and lab-grown diamonds are two different and they cannot replace each other. Lab-grown diamond as a category is growing and it has different client base who love to wear different types of fashion jewellery.” He said “Lab-grown diamonds have the potential to build and sustain a stronger and more self-reliant domestic cutting and polishing industry. We have asked Union commerce minister Piyush Goyal to include the LGD industry that has the potential to employ 1 million people to process 150 million carats of lab-grown diamonds and achieve an export turnover of Rs. 40,000 crores soon.”

"The diamond units are providing jobs to workers, but not on a scale seen before the war. They are being given six hours of work instead of eight hours earlier, and two weekly offs as against one day earlier," Navadiya said.

As of today, manufacturers are sustaining despite facing losses. The production cost has increased and ready goods are not fetching the right price. Hence, the diamond units are providing limited jobs by trimming down the working hours of employees. There is a shortage of rough diamonds, but manufacturers are using stocks lying with them to keep the polishers engaged.

The US is a major buyer of diamonds processed in India, accounting for nearly 50% of the country's export of diamonds and diamond jewellery. Jewellery retailers in the US, wary of unwittingly stocking diamonds sourced from Ukraine's aggressor Russia, have asked the diamond cutting and polishing units in Surat and Mumbai to mention the place of origin of the rough stones in their invoice.

The US retailers have also sought a declaration from the Indian diamond processing units that they will not use rough stones sourced from Russia. Their demand could hurt India's gems and jewellery exports and complicate matters for the country's diamond industry which was already feeling the heat from the sanctions imposed on Russia.

The diamond trade has also urged the commerce minister to bring lab-grown diamonds under Production-Linked Incentive scheme as it has an export potential of Rs 40,000 crore within the next five years.

At present, the situation has improved a lot in Surat. Alongside the natural diamond cutting and polishing, a lot of lab-grown diamond manufacturing has picked up. Some of the units that are into natural diamond cutting and polishing have converted 20 -30 per cent of their production into lab-grown diamonds. This is generating jobs for the diamond workers in Surat. He added that new lab-grown units too are coming up in Surat and new employment is being created.

In support of the Indian diamond industry, the Government of India hikes GST for cut & polished diamonds from 0.25% to 1.5%. GJEPC had been seeking GST increase on cut & polished diamonds to 1.5%, GST decrease on grading and certification to 1.5%, refund of accumulated ITC, etc. GST Council, in its 47th meeting held on 28th and 29th June 2022, has come up with revisions in GST rates for a series of products. With regards to cut & polished diamonds, the GST has been increased from 0.25% to 1.5%, effective 18th July 2022, which the diamond sector has welcomed as it resolves the issue of input tax credit accumulation being faced on account of inverted duty under GST regime. The absence of the facility to claim a refund of such input tax credit accumulated on account of input services of the Central Goods and Services Act, 2017 led to huge ITC accumulation, as regards transactions in the domestic stream, which transactions eventually culminate into exports. Colin Shah, chairman of GJEPC said, “We are thankful to Hon’ble Finance Minister for rationalizing the GST rates on cut & polished diamonds and giving relief concerning the issue of ITC accumulation for the diamond sector. It is estimated that approximately Rs 600 crores of ITC accumulation are there as of date with the Diamond Industry. The increase in GST rate on cut & polished diamonds will not only stop further accumulation of ITC but release blocked working capital and stimulate industry growth. We would now earnestly urge the government to formalize a mechanism for the traders to receive the refund of the accumulated GST.”

With the Indian government’s support, the diamond industry is currently in good stead and looks to grow to greater heights going forward.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished

Top Articles
Latest Posts
Article information

Author: Terrell Hackett

Last Updated: 12/07/2022

Views: 6201

Rating: 4.1 / 5 (52 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Terrell Hackett

Birthday: 1992-03-17

Address: Suite 453 459 Gibson Squares, East Adriane, AK 71925-5692

Phone: +21811810803470

Job: Chief Representative

Hobby: Board games, Rock climbing, Ghost hunting, Origami, Kabaddi, Mushroom hunting, Gaming

Introduction: My name is Terrell Hackett, I am a gleaming, brainy, courageous, helpful, healthy, cooperative, graceful person who loves writing and wants to share my knowledge and understanding with you.