India’s diamond sector is currently experiencing a significant crisis, marked by sharp declines in both imports and exports over the past three years. This situation has led to defaults, factory closures, and widespread job losses, according to the Global Trade Research Initiative (GTRI).
While export returns have increased, a substantial inventory of unprocessed rough diamonds is accumulating due to reduced orders and rising competition from lab-grown diamonds. Ajay Srivastava, founder of GTRI, noted the tragic impact of these challenges, revealing that over 60 individuals in Gujarat’s diamond sector have taken their own lives, underscoring the severe financial and emotional strain the industry is facing.
Exports of cut and polished diamonds have decreased significantly, dropping 34.6% from $24.4 billion in FY 2022 to $13.1 billion in FY 2024. The share of unsold diamonds returning to India has also risen from 35% to 45.6%, with net exports of cut and polished diamonds declining by 45.3%, from $15.9 billion to $8.7 billion.
This trend reflects a weak market and growing unsold inventory. The gap between net rough diamond imports and net cut and polished diamond exports has widened markedly, from $1.6 billion in FY 2022 to $4.4 billion in FY 2024, signaling a significant inventory buildup and insufficient export orders. Challenges within the sector stem from regulatory issues and internal inefficiencies, exacerbated by a sharp drop in demand for polished diamonds in key markets such as the US, China, and Europe. Economic uncertainty, inflation, and geopolitical tensions have contributed to reduced consumer spending on luxury goods, including diamonds. Srivastava pointed out that fluctuations in global diamond prices have led to uncertainty, causing buyers to hesitate in purchasing rough diamonds amid expectations of further price declines.
Additionally, the ongoing Russia-Ukraine conflict has disrupted the global diamond supply chain, complicating trade with sanctions affecting Russia, a major producer of rough diamonds. Changing consumer preferences toward more affordable and sustainable lab-grown diamonds are further impacting the demand for natural diamonds. Internally, many polishing units are struggling with large unsold inventories of polished diamonds, which discourages them from importing new rough diamonds. Rising operational costs—encompassing labor, energy, and materials—along with reduced margins in the global diamond trade, have made it increasingly challenging for many polishing units to remain viable.
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This situation has led to shop closures and layoffs, particularly in Surat. The industry’s dependence on financing has also become problematic, as tighter credit conditions and decreased bank lending have hindered companies’ ability to purchase rough diamonds, stalling production. Moreover, a significant number of cut and polished diamonds exported from India are being returned due to quality issues, overstocking by buyers, mismatches in specifications, and price fluctuations.
The complex customs procedures for handling these returns add to the burden on exporters. Interestingly, although Dubai does not produce diamonds, its share in India’s rough diamond imports has been on the rise. Dubai sources rough diamonds from countries like Botswana, Angola, South Africa, and Russia, then re-exports them to India. Meanwhile, Belgium’s share of India’s rough diamond imports has decreased from 37.9% in FY 2020 to 17.6% in FY 2024, while Dubai’s share has surged from 36.3% to 60.8% in the same period. The rise of Dubai’s share can be attributed to India’s high corporate tax regime on foreign rough diamond suppliers, which compels them to re-export diamonds to Dubai before sending them to India. This situation has rendered India’s Special Notified Zones (SNZs) in Mumbai and Surat largely ineffective. To support the sector, GTRI has proposed several measures, including extending export credit terms, exempting foreign rough diamond sellers from corporate tax in India, regulating the lab-grown diamond industry, and reevaluating the zero tariff on imports of cut and polished diamonds from Dubai under the India-UAE trade pact.
The RBI could extend the export credit period for cut and polished diamond exporters from six to twelve months, addressing buyers’ demand for longer credit terms, a feasible step given India’s strong foreign exchange reserves. The Indian diamond industry comprises over 7,000 companies involved in various activities such as cutting, polishing, and exporting diamonds, primarily located in Surat, Gujarat, and Mumbai, Maharashtra. The majority of these firms are small and medium-sized enterprises, many of which are family-owned.
The industry directly employs about 1.3 million workers, including those involved in cutting, polishing, trading, and exporting diamonds. Surat alone accounts for nearly 800,000 workers, making it the world’s largest hub for diamond cutting and polishing. Additionally, the industry supports millions of indirect jobs in related sectors such as logistics, transport, retail, and diamond tool manufacturing.
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