Polishing industry faces production cut amid delay in rough diamond imports

India's cut and polished diamonds industry, of which Surat is the largest cluster comprising over 90 per cent of the business, continues to suffer amid the Russia-Ukraine conflict. The industry is facing a hit of at least 30-40 per cent to its production capacity, due to delayed diamond imports.

While Russia is nowhere among the top export destinations for cut and polished diamonds from India, the country's Alrosa is one of the major suppliers of rough diamonds.

"After an initial scare of banks freezing transactions, the Indian diamond industry made all the payments to Alrosa which intends to stay true to its shipment commitments. However, the middlemen diamond traders, who underwrite the shipments, have now refused to bear the insurance leading to a delay in shipments," said Bakul Gajera of Surat-based Laxmi Diamonds, one of the leading diamond polishers in the region.

Confirming the same, a diamond trader, who manages rough diamond imports in the industry, said that not only the conflict, but international logistics issues coupled with hike in freight tariffs have also led to uncertainty of shipments. "While very large traders with deep pockets are able to underwrite, many of us are unable to do so amid uncertainty. We are in a wait-and-watch mode and should be able to honour the underwriting commitments soon," the diamond trader told Business Standard on condition of anonymity.

After the Russia-Ukraine conflict broke out in February 2022, the largest Russian supplier of rough diamonds had assured the Indian diamond industry that its business was "as usual" even as the company had necessary resources to "ensure normal operation in the current circumstances".

According to Dinesh Navadia, regional chairman - Gujarat of the Gems and Jewellery Export Promotion Council (GJEPC), almost 50 per cent of the Indian industry's rough diamonds come from the African continent. But Russia's Alrosa is the second biggest source with 30-35 per cent share, followed by the likes of Canada and Australia.

However, now with rough diamond shipments being delayed, the industry is facing an impact on production capacity of at least 30-40 per cent, said Gajera.

Seconding Gajera is Kirti Shah, another lead diamond polisher in Surat, who said that as a result, summer vacation has come early to the region.

"Several units have announced early summer vacation for workers since production has taken a hit due to delay in rough diamond imports. Also, suppliers have held on to rough diamond prices which had seen a 60-70 per cent jump in the last few months whereas polished diamond prices have not risen to the same tune," said Shah.

With nine of ten diamonds in the world polished in Surat across roughly 6000 diamond polishing units, the industry employs a total workforce of over 700,000 while clocking an annual turnover of roughly over Rs 1 trillion.

Diamond polishing units typically employ 3-4 workers at each table, known as emery wheels. According to Shah, several units have retained only two or three workers per table while offering early vacation leave to one or two per table, thereby impacting at least 20 percent of the workforce.

GJEPC data shows that the overall gross exports of cut & polished diamonds grew by 61.49 per cent (61.94 per cent in rupee terms) to $20057.49 million (Rs 149001.56 crore) for April 2021 - January 2022 as compared to $ 12420.06 million (Rs 92008.1 crore) for the same period of previous year.

Whereas rough diamond imports stood at $14833.65 million (Rs 110264.03 crore) for April 2021 - January 2022 period as against $8043.33 million (Rs 59344.77 crore), posting a growth of 84.42 per cent (85.80 per cent in rupee terms) for the same period of previous year.

Earlier, Alrosa had written to all its stakeholders, including Indian diamond industry players such as Bharat Diamond Bourse (BDB) regarding US restrictions imposed on Alrosa last week while expressing its intentions to fulfill its obligations to its clients around the world.