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Modern state of Indian diamond industry

16 september 2019

Diamond mining and trade in India

In India, there is a primary diamond deposit in Madhya Pradesh (Majahgon) and several alluvial diamond deposits, the total reserves of which are estimated at 2.6 mn carats. The diamond production is small, up to 40,000 carats per year for about US$8 mn (Table 1, Figure 1).

Table 1

Diamond mining in India, 2006-2011

                  Based on the Kimberley Process Data

That said, India is the largest consumer of rough diamonds in the world. As the diamond mining in India is small, the country imports significant rough diamond volumes (Table 2).

Table 2

India’s diamond imports and exports, 2006-2017

            Based on the Kimberley Process Data

India as a leading center of the world’s diamond cutting and polishing

India, certainly, is a leader in the world’s polished diamond market: it has a 60%-share of the market by value, 80% by volume and 92% by quantity of stones. About 1.3 mn people are employed in the diamond and jewellery business working at 25,000 enterprises.

Today, the country makes 8 out of every 10 polished diamonds in the world. While earlier, it was mainly so called ‘Indian goods’ - small-size polished diamonds, now a trend has formed to widen the range of the stones processed - two-carat diamonds and bigger. In India, new factories are under construction fitted with the most up-to-date equipment and the laser processing technologies and computer planning of diamonds are used and developed.

The Indian cutting and polishing industry is located in the west of the country – in Mumbai, Surat and Ahmadabad. All the rough and polished business is concentrated in the hands of 2,500 families and is controlled by them, they are Jainists and closely interconnected by family ties. This community has a very ancient religion and makes about 0.5% of the country‘s population and they play an important role in trade and finances.

The Surat diamond industry manufactures polished diamonds for Rs1 trillion per year. 90% of all the diamonds are cut and polished in Surat, the rest gems are processed in the hubs like Amreli, Bhavnagar and Ahmadabad. Polished diamond manufacturers in Surat, the largest diamond cutting centre in the world have cut their output almost by 50% after the sharp decline in the polished prices, to avoid the growth of the inventories on the sluggish market.

In India there are almost 4,000 cutting and polishing enterprises, and the country ranks first in the world in the manufacture of these gems. At present, about 1 million people work at the Indian diamond cutting and polishing units. The India’s cutting and polishing industry is a highly organized one having a 4-tier structure. The Gem and Jewellery Export Promotion Council (GJEPC) is at the top of the pyramid. The task of the Council is to coordinate the interests of the government and industry as well as to provide assistance in the promotion of the Indian jewellery industry’s products sales in the world market.

The 2d tier comprises the largest private import-export companies. All of them are in the cutting and polishing sector, except for two companies. MMTC is an export-import company trading in mineral raw materials. The second one - Hindustan Diamond Company Private Limited (HDCPL) - is a joint venture between the Ministry of Trade and Industry of India and De Beers Group with equal shares in the company. HDCPL was set up in 1978 and is one of the leading trading agents in rough diamonds in India. HDCPL - a DTC sightholder - supplies roughs to the Indian diamond industry mainly to small- and medium-scale enterprises.

Small and medium-scale units of the industry’s organized sector make the 3d tier. They hold contracts with major rough importers. Their distinctive feature is their narrow specialization depending on the nature of the goods processed.   

Small-scale units of the unorganized sector working under sub-contracts and specializing in the processing of very small rough diamonds make the 4th tier. The secondary market is actually the source of roughs for these units.

2018 showed the decline in the rough imports but it was expected that things would go better in future as soon as the issues of the bank financing of the industry would be settled. However, the second half of 2019 saw the demand for small rough diamonds going down all over the world. And the Indian diamond manufacturers have adjusted their stocks accordingly without buying this diamond category. The prices for small-size roughs dropped, which resulted in the 16.84% drop by value and in the 12.84% drop by volume in carats.    

The Surat diamond industry manufacturing about 85% of the global polished diamonds faced the dismal start in the new financial year when the polished prices on the Rapnet - the largest world’s online platform for wholesale trade in these stones – have decreased by 15%, while the small polished diamond prices have dropped almost by 25% since January 2019.

Jewellery manufacture in India

The jewellery manufacture in India is largely export-oriented. The India’s jewelry companies are highly organized production facilities with up-to-date management techniques and they take into account the local peculiarities. That said, even small-scale units (25-50 employees) are fitted with advanced equipment.

The jewellery industry manufactures mainly pieces of western designs. But among the jewellery made there are also exclusive high-end jewellery pieces of the traditional Indian designs. The most up-to-date equipment, casting techniques and computer design elements are used in their manufacture.

The India’s government and the Gem and Jewellery Export Promotion Council help India to take the leading positions both in cutting and polishing as well as in the jewellery manufacture and export. The high performance figures in the jewellery manufacture and export are attributed to the government’s policy aimed at the liberalization of the industry and the domestic market of gems and precious metals.

However, in July 2019, the government of India announced the increase in the import tax for gold from 10% up to 12%, which made the situation difficult for the gold industry and the jewellery sector. In June 2019, the India’s gold imports declined by 55% compared to the 2018 level - to the lowest one in the last three years, which resulted in the prices on the local market rising to the record high level, while the higher import tax decreased the demand. In July, India imported 39.66 tonnes of gold compared to 88,16 tonnes in the previous year. Over a month, the country’s imports dropped by 42% to UD$1.71 bn.

In July, domestic gold prices hit a record high level reflecting the growth on the market abroad, and the India’s government increased the precious metal import tax up to 12.5% from 10%. The higher import tax and the price rise had a strong impact on the demand in August.

It should be noted that the North American jewellery industry being an important market for the polished diamonds manufactured in India continued its consolidation in 2018 when 1,064 North American jewellery companies shut down while the number of companies that emerged in this business grew up by almost 30% according to the statistics compiled by the Jewelers Board of Trade (JBT). The companied shut down include 893 jewellery retailers (852 in the USA; 41 in Canada); 106 wholesalers (100 in the USA; 6 in Canada); and 65 manufacturers (61 in the USA; 4 in Canada). The number of new companies registered at the JBT last year grew up significantly. In 2018, 230 new companies were registered at the JBT, 38.6% more compared to the previous year. All except for 8 companies were launched in the United States.

The manufacture of the lab-grown diamond jewellery

According to estimates, the lab-grown diamond (LGD) jewellery accounts for over 2% of the India’s gem and jewellery exports to the USA totaling $14 bn. This year, the LGD diamond jewellery exports, probably, will make about $280 mn, says Business Standard.

It is said in the report that Shashikant Dalichand Shah, chairman of the Lab Grown Diamond and Jewellery Promotion Council, expressed his optimism regarding the US market because the Indian exporters recorded an increase in the US orders for the next holiday season, New Year and International Women’s Day.

The lab-grown jewellery accounts for 2% of the total exports of gems and jewellery to the USA. Except for the USA, India also еxports small quantities of its LGD to France, Italy and Australia as well as to the European and Asian countries. The Indian jewellery manufacturers import large size lab-grown rough diamonds from the USA, while they import smaller roughs from China.

The prospects of the India’s diamond industry development

1. In spite of the crisis, the Indian diamond industry still remains highly competitive in the world diamond business. This attributes to its historic traditions and a large number of people working in the diamond manufacture sector for a relatively low salary, and the introduction of an up-to-date equipment and technologies in the cutting&polishing and jewellery industries.

2. High rates of the GDP growth in India and high growth rates of some other industries result in higher standard of living of the population and, accordingly, in higher domestic demand for jewellery and polished diamonds in the country with a 1,354 mn population, which is a huge potential for the further development of the diamond industry.

3. Actually, no state control over the diamond and jewellery circulation allows the Indian manufacturers bypass new obstacles that have arisen due to the changes in the diamond and jewellery circulation legislation.

Yury Danilov, Ph. D., Lead Research Fellow at Subsoil Use Innovative Economics Laboratory of the North-Eastern Federal University