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11 january 2021

It’s been a tough year for all and sundry. And would be an understatement to say the year 2020 was not exactly the best of time for the Indian diamond industry as well. But, it is a known fact that the diamond industry has weathered many a storm during the past many decades. Known for its resilience, the Industry has faced every crisis over the years with grit and courage, returning stronger each time. To put it simply, the Indian diamond industry is a survivor!

One also cannot say that COVID-19 pandemic’s impact on the industry hit it so hard and brought it to its present state. It partly did, but it’s was a ‘double whammy’. The Indian industry was already going through a slow phase with multiple issues affecting the diamond business. And the spread of Coronavirus globally only added to the existing problems.

For years, the diamond, gems and jewellery sector has played a significant role in the Indian economy. Moreover, India exports more than 75% of the world’s polished diamond, gems and jewellery, contributing to the country's foreign exchange earnings (FEEs). It is one of the fastest-growing sectors, mostly export-oriented and labour intensive, contributing around 7% to the country’s GDP and 15% to India’s total merchandise export. Employing more than 5 million people currently, it is expected to reach 8.23 million by 2022.

India is the world’s largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies. Because of its low costs and availability of high-skilled labour, India is deemed to be the hub of the global jewellery market. Not surprising that the Indian government has undertaken various measures to promote investment and upgrade technology and skills to promote ‘Brand India’ in the international market. And due to its potential for growth and value addition, the government has declared gems and jewellery sector as a focus area for export promotion.

The Indian government presently allows 100% Foreign Direct Investment (FDI) in the sector through the automatic route.

However, the COVID-19 was an unprecedented situation that disrupted the Indian diamond/jewellery industry, like other industries world over, pushing its boundaries of resilience. All along the pipeline including miners, manufacturers, wholesalers, retailers in the industry had to gear up to follow new norms, and so did the Indian industry.

Resuming manufacturing operations or even trading in the midst of the pandemic was daunting and the industry members put in a lot of thinking and started the units after reframing new rules and different social norms…of course with courage in an intimidating pandemic situation.

But, with the global economy gradually turning around again and many mining companies beginning operations in Canada and Africa; and stores in consuming countries gradually opening for business, the industry got the required encouragement to grow further. Besides, closer home, with Special Export Zones (SEZs) in Jaipur/Surat; and Surat Hira Bourse starting operations, it was no looking back for the Indian industry.

However, India’s diamond exports continued to dip in the following months by registering $ 389.04 mln compared to $1864.56 mln during May 2019, a decline of 79.13%, due to the total closure of all manufacturing units for virtually the whole of April and the partial reopening of only a few units in May, there were almost no exports/imports during April.

In May, exports to China, Europe and Australia showed some growth, but the US and the Middle East continued to be impacted due to COVID-19. India’s export of cut & polished diamonds at $ 898.32 mln in the month of June 2020 declined by 46.91 % as compared to $ 1692.18 mln for the same month of 2019.

For the period April-June 2020, the overall exports of cut & polished diamonds at $ 1801.71 mln showed a decline of 49.68% as compared to $ 3580.22 mln for the same period of the year 2019. In July again, India’s cut and polished diamond exports declined by 38.85% recording $ 918.44 mn during July 2020 as against $ 1501.97 mn exported in July 2019. Rough imports during July declined 81.63% to $ 230.90 mn as compared to $ 1094.58 mn imported during July of the previous year.

In an attempt to boost confidence into the industry, the then Chairman of the Gem & Jewellery Export Promotion Council (GJEPC) Pramod Agrawal was more than positive and claimed that the Indian gem and jewellery industry had a backlog of over $1 billion-worth of orders. He also indicated that the orders need to be delivered soon, or else there is a fear of losing business to neighbouring countries like China or Thailand, as both the countries were operational at that point of time. This gave the required impetus to the industry which went head-on to continue the manufacturing process, of course by taking all precautions but not cowing down.

During the strict lockdown in the country, GJEPC managed to convince the Maharashtra government to allow minimal operations at the Santacruz Electronics Export Promotion Zone (SEEPZ), Bharat Diamond Bourse (BDB) etc., which are the most prominent export zones in India. GJEPC along with the Bharat Diamond Bourse worked with Maharashtra Industrial Development Corporation (MIDC) to formulate a Standard Operating Procedure (SOP) to commence minimal operations at BDB while complying with COVID-19 restrictions to clear backlogs, which worked well for the industry.

This was the time when major decisions were taken by the industry members along with the trade organizations. The then Vice Chairman Colin Shah explained: “This industry has emerged from every crisis more resilient. This time, it will take longer to find the new normal, which could be about 20% below the pre-Coronavirus level in value terms. The industry collectively took a decision to halt rough diamond imports for a month starting from May 15th, 2020 to stabilise diamond prices and clear the existing inventory.”

It was accepted by the Indian industry that with the pandemic, which had overtaken the global business scenario, things will never be the same again. So, to bring back the industry to working mode again, it was decided to ensure that the workforce is brought back once the lockdown was lifted.

It is reported in the media that when asked how the Indian Industry can revive exports during the uncertain times, the then Economic Advisor, Ministry of Commerce and Industry, Government of India. Ms Rupa Dutta, said that “the diamond/jewellery business will be uncertain and will take time before some revival in exports is seen.” “As such, revival in the gem and jewellery sector will definitely take more time as compared to other sectors,” she said.

The Surat diamond manufacturing sector has not seen such a dismal situation in recent times. With the pandemic raging and the lockdown in place, Surat Diamond Workers Union president Jaysukh Gajera feared 70 per cent of the workers who were leaving the city may never come back as they were left with no source of income.

With more than 5 million people employed in the 8000 odd diamond cutting and polishing units, Surat remained shut from March-end till the first week of June. But again, since business resumed in the second week of June, over 600 workers and their families tested positive for coronavirus forcing workers to return to their native places in hordes. As the diamond polishing units were shut, the workers who lived in rented houses were unable to sustain their livelihood. They have been jobless for almost four months and there was little hope the situation will improve in the near future.

However, with the cutting centre in Surat not ready to back off the manufacturers took all steps to keep the units working but with adequate precautions to keep the workers safe from the COVID-19 virus. India’s cut and polished diamond exports declined 25.72 per cent registering $ 1216.79 mn during August 2020, against $ 1638.22 mn exported in August 2019. Rough imports during August 2020 declined 42.23 per cent to $ 497.51 mn as compared to $ 861.13 mn imported during Aug 2019.

Exports of rough diamonds totalled $ 22.75 mn in Aug 2020 as compared to $ 120.15 mn in Aug 2019.

The measures to control the pandemic meant production centres were closed or operating at very low levels, and rough-diamond imports fell in line with poor end-product demand.

Diamond exports from India, which polishes about 90% of the world’s rough diamonds, will collapse by as much as a quarter this year as the pandemic crushes demand and breaks supply chains. That will push exports to the lowest in data going back to the 2009 fiscal year, according to industry sources.

“In 2008, things were bad for a quarter and business recovered after that,” Shah said in a media interview. “This is now two quarters gone.” While festivals such as Diwali, Christmas and Valentine’s Day will prop up demand in the next six months, that won’t be enough to lift full-year exports, he said. India imposed one of the world’s strictest lockdowns in March to contain the coronavirus outbreak. That brought activity to a halt and put the economy on course for its first annual contraction in more than four decades. With more than 7 million infections, the country is one of the world’s virus hot spots. The measures to control the pandemic meant production centres were closed or operating at very low levels, and rough-diamond imports fell in line with poor end-product demand. The country’s diamond exports sank 37% to $5.5 billion in the six months through September from the year-earlier period. Workers have now started returning to the diamond-polishing hubs of Surat, Mumbai and Kolkata, and factories are operating at 70% to 80% of capacity with social-distancing norms in place, Shah said. Still, it’s difficult to predict global supply chains as rules to control the virus change frequently, he said.

For the record, the Surat’s diamond market, which employs over half a million people across 6,000 polishing units, is the world’s biggest diamond polishing hub, but faced the toughest test for survival during the lockdown. Never has the cutting centre witnessed its sales dwindling to lowest ever in recent times. In addition, Surat had never witnessed such large-scale exodus of the workers back to their natives amid fears of catching the COVID-19 infection.

Meanwhile, it is essential to note that the coronavirus pandemic definitely caused immense disruptions to the processing sector. But it also disturbed the purchasing strength of the consuming markets such as the US, Canada, Europe, China, Hong Kong, Japan among others. Surat polishes 14 out of 15 rough diamonds in the world with most of them exported back to the overseas consumer markets.

By July 2020, the COVID-19 pandemic had reached a rather alarming stage in India, and Surat, the biggest diamond cutting centre of India was badly hit too. So, the city saw a massive exodus of diamond industry workers leaving most of the diamond units big and small closed.

It is reported that more than 8000 diamond cutting and polishing units in Surat, which remained shut from March-end till the first week of June, employed about 0.6 million people.

But, since the business activities resumed in the second week of June, production has been picking up gradually, despite strict precautionary measures like the closure of some units due to COVID-19 infections by the government authorities.

Meanwhile, demand for polished diamonds dipped to an all-time low due to the pandemic. All the consuming centres like US, Hong Kong, EU and other centres reported low demand, putting more pressure on the Indian diamond industry. To ease the stockpile and stabilise diamond prices, the GJEPC and other trade bodies suggested voluntary ceasing rough imports by India's diamond companies. More than 2,000 large and small firms in India cancelled imports and convinced global miners ALROSA and De Beers of the urgency to defer supply and avert panic sale as demand plunged amid Covid-19.

As of early August, the diamond market witnessed some signs of recovery with demand gradually picking up in the US, China and parts of Europe. Diamond cutting and polishing activity too picked up in Surat as Covid-19 cases declined in factories.

Of the 7,000 odd diamond manufacturing units, nearly 5,000 small, medium and large units soon became operational. Following government guidelines, the factories were working at 70% capacity. Soon, diamond exporters were witnessing orders from the US, Hong Kong and parts of Europe for all types of polished goods.

As per reports in the media, diamond manufacturers in Surat sounded positive before Diwali in November. According to them, during the previous two months, good demand has changed the scenario for the sector with fresh orders coming in from the US and Europe. “The mood is good, especially after nearly 3 months of almost no business during the lockdown. But now our sales are improving with every passing month. Initially, China and Hong Kong gave some good business but due to political trouble there, the US has now become our steady market for exports. We believe the momentum to continue at least till the beginning of New Year 2021,” they said.

However, during Diwali, the diamantaires faced a shortage of manpower and rough diamonds. The industry has cut down on the Diwali vacation for the diamond workers from a usual 20-day vacation to just 5 days. It is reported that the workers too were eager to work and cut down their Diwali holidays to earn more, having lost their earnings during the lockdown.

The shortage of rough is attributed to travel curbs. As there is too much delay in procuring rough diamonds, manufacturing was getting affected adversely. The purchases for rough diamonds wasn’t happening at the pace it is required. “There is no stock in the pipeline. The polishers are hand-to-mouth for rough diamonds. Polished diamond demand is likely to remain firm till Christmas,” was the common refrain by the cutters, adding that this has led to a marginal increase in the rough diamond prices. In addition, manufacturers claimed that in the Covid-hit scenario, when other investment asset classes are volatile, a large section of global investors are believed to have turned to the diamond for its haven quality.

With the efforts of the industry members and government support, the Surat’s diamond trade was soon sparkling again, if not as bright as in the past, but orders piled up at Surat units. This was again, the reason why diamantaires cut short workers’ Diwali vacations, as workers too did not want holidays. Since then, the ‘no holidays’ scenario had continued due to overseas demand from consumer markets. In fact, India’s diamond trade is getting closer to its pre-Covid sparkle, thanks to the renewed demand from the United States and Europe, which together account for nearly half of India’s polished diamond exports.

According to sources, the diamond exporters from Surat and Mumbai were seeing signs of a strong revival. And with most of the piled-up inventories of polished diamonds exhausted, the polishers have increasingly started sourcing rough diamonds to execute new orders. Rough diamonds imports in September 2020 stood at 163.71 lakh carats worth $ 1347.30 mn, as against 152.24 lakh carats worth $ 1159.63 m in September last year. This is the first time since February the rough diamond imports have increased on a year-on-year basis.

All cutting centres in the country including Surat, the world’s leading diamond manufacturing hub, is humming again. Restrictions and rules due to the pandemic are in force, but many leading manufacturers have not reported any new COVID cases of late. Colin Shah, Chairman, GJEPC recently commented: “Cut and polished diamonds are a major contributor to overall India’s gems and jewellery exports amounting to $35 bn. Although exports in the first quarter have been severely impacted by the ongoing pandemic, it is heartening to note that exports have commenced from India. As there are orders coming from the US, Hong Kong and parts of Europe for certain types of polished goods, the sector is on the path of recovery. The upcoming holiday season in the western countries would further boost the demand for gems and jewellery.”

According to Sanjay Shah, Convener, Diamond Panel Committee, GJEPC, with India’s overall exports currently pegged at 50%, GJEPC is optimistic about Q3 & Q4 as orders have come in from the US, and demand from China too picked up from September onwards, expecting an additional 10-15% boost in orders.

Currently, of the nearly 7000 diamond manufacturing units in Surat, about half are operational. Due to the stringent government guidelines, the factories are now working at 70% capacity. Diamond cutting units in Surat have been allowed greater flexibility to operate from 31 July on condition that they will adhere to a set of norms that include mandatory Covid-19 tests for traders and staff, as per media reports.

Restrictions were imposed on the functioning of the units as Surat witnessed a sharp increase in Covid-19 cases over the past few months. But, after a short lull period with total lockdown and exodus of workers, Surat, the diamond manufacturing hub of the country has returned like the ‘phoenix’!

GJEPC has also signed a memorandum of understanding (MoU) with Maharashtra Industrial Development Corporation (MIDC) to build India’s largest jewellery park in at Ghansoli in Navi-Mumbai on 25 acres land with a capacity to have more than 5000 jewellery units of various sizes ranging from 500–10,000 square feet. The overall investment will be $ 2.09 billion. Gold Monetisation Scheme enables individuals, trusts and mutual funds to deposit gold with banks and earn interest on the same in return. Also, The Directorate General of Foreign Trade (DGFT) at the Government of India issued a notification dated 28th September 2020 permitting the amendment of technical nature, typographical errors or errors apparent on the face of records in KP Certificate based on Standards Operating Procedure (SOP), and validated by the Gem & Jewellery Export Promotion Council of India (GJEPC). The amended policy condition shall also apply to pending imports of rough diamonds.

The manufacturing sector was buzzing with activity after Diwali, as nearly 200,000 migrant workers returned to work. With orders reportedly pouring in from across the world, including the key markets of the United States of America and China, the manufacturers were hell-bent on completing the orders much before Christmas and New Year. Of late, the industry performance is picking up despite being under lockdown due to the pandemic. India’s cut and polished diamond exports declined 19.60 per cent registering $ 1564 mn during Sept 2020 as against $ 1946 mn exported in Sept 2019. However, rough imports during Sept 2020 increased 16.18 per cent to $ 1347.30 mn as compared to $ 1159.63 mn imported during Sept 2019.

Colin Shah, chairman, Gem & Jewellery Export Promotion Council (GJEPC) expressed optimism saying: “Demand has revived, and the trade is getting good orders from the US, China, Gulf countries and some parts of Europe. There is good demand in India too. The worst is behind us hopefully. The workers are also returning to join their work as well.” However, the lockdown in Belgium, the world’s largest diamond trading centre battling the world's worst coronavirus outbreak by some measures is the major problem faced by the Indian industry.

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