Indian diamond traders hit by rupee risks amid Russian supply woes

"The Russians are not comfortable with the rupee invoicing as far as the gems and jewelry sector is concerned," said Gem & Jewellery Export Promotion Council

Efforts by Indian diamond traders to secure more uncut product from Russia and allay an export slump in the world’s biggest polishing hub are being hampered by currency risks.

Supplies from Russia to India have fallen 40 per cent since April, leading to a knock-on slump in exports from the Asian nation. Furthermore, not a single jeweler has utilized a special facility set up in July to allow the trade to be handled in rupees, according to the Gem & Jewellery Export Promotion Council.

“Nobody is willing to take the exchange risk and volatility,” the council’s chairman, Vipul Shah, said in an interview. “The Russians are not comfortable with the rupee invoicing as far as the gems and jewelry sector is concerned.” 

With Russia’s Alrosa PJSC accounting for about a third of global rough-diamond supply, the $80 billion-a-year industry was thrown into turmoil last year as cutters, polishers and traders hunted for ways to keep buying from the nation even as their banks couldn’t or wouldn’t finance payments. But while some Indian companies have still been quietly buying from Russian miners, overall supply remains a challenge.

“The supply situation has not improved as no payments are going into Russia,” Shah said. “We are in constant dialog with the Russian government, the Indian government and Russian miners” to boost supplies of rough stones, he added. 

India, which considers Moscow a close political and trade partner, imports oil, weapons and commodities from Russia despite the threat of sanctions due to the war in Ukraine. On Monday, its government said it was engaging with Russia to resolve issues on the local currency payment and expects the trade to pick up soon.

Meanwhile, Shah said the council was “asking the Indian government if they can import Russian diamonds directly on a government-to-government basis for export purposes but the government also has to balance global relations.”

Any supply boost would be welcome as the nation’s diamond exports fell 7.7 per cent year-on-year during April-December to $16.6 billion. Shipments are estimated to be flat in the year ending March following weak demand in key consumers US and China. 

While the exporters have been getting goods directly from De Beers and mines from Botswana and Angola, demand from China remains muted, Shah said. The supply shortfall is not as stark but “once we start seeing the demand picking up, then supply will be a real pain for us,” he said.

Ahead of India’s federal budget next month, the industry is also seeking a reduction in import taxes of precious metals and lab-grown diamond seeds.